Shares of Jumia Technologies (JMIA -0.73%), an e-commerce and digital-payments company in Africa, were crushed on Tuesday after the company reported business results for the third quarter of 2020. Investors' expectations were riding high under the assumption the COVID-19 pandemic was pushing Jumia's adoption. But revenue was down for the quarter. This led to the stock being down 23% as of 10:15 a.m. EST.
Jumia's total Q3 revenue fell almost 18% year over year. Looking at just its e-commerce operations, gross merchandise volume fell a more pronounced 28% from last year. Investors had bid the stock up about 100% in 2020 in anticipation of a big quarter. Needless to say, this isn't what they had in mind.
Perhaps Wall Street is missing the bigger picture here. A breakdown of Jumia's results reveals a sharp decline in first-party revenue -- products Jumia used to sell directly. However, the company has intentionally shifted to become more of a third-party platform company. In this way, the decline in first-party revenue and the resulting drag on overall results should have been anticipated.
Looking at other important metrics for long-term investors, there are some encouraging signs. First, annual active customers rose 23% year over year to 6.7 million. Second, the shift from first-party to third-party sales is more profitable for Jumia, with gross profit increasing 23% from last year. Finally, total payment volume for JumiaPay was up an impressive 50% from the third quarter of 2019.
In my opinion, Jumia's improvement in these three areas makes it a company worthy of deeper research. With Africa in the early stages of a digital revolution, the company might finally be making all the right moves in 2020 after a string of miscues shortly after going public.