Founded in 2012 and headquartered in Berlin, Germany, Jumia Technologies (JMIA 0.86%) is sometimes touted as the Amazon of Africa. So when Jumia stock peaked near $70 a year ago, it still might have seemed like a bargain as shareholders envisioned Amazonian long-term returns.
In early 2022, after a persistent share-price rout, investors must reassess their position. If they liked the stock at $70, shouldn't they love it at less than $10?
That might not be the right question to ask, though. If price is what you pay while value is what you actually get (my apologies for butchering a well-worn Warren Buffett quote), then investors should check Jumia's financials and decide for themselves whether the company's substantial outlays will translate to value for loyal shareholders.
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Tapping into a vast market
Some investors view Jumia stock as a way to get exposure to Africa as an emerging economy. That's a simplistic way to view Jumia as an investment, since it's a company, not a continent.
Yet, a stake in Jumia as a wager on Africa's growth may still pay off in the long run. Jumia bills itself as the leading pan-African e-commerce platform, and this isn't empty braggadocio. Impressively, the company has active operations across 11 African nations encompassing more than 600 million people, while accounting for over 70% of Africa's GDP and nearly 70% of Africa's internet users.
With just 22% internet connectivity, Africa could represent a rare blue-sky opportunity in e-commerce in the 2020s. Perhaps Alphabet's planned $1 billion investment in Africa could facilitate the continent's transition toward full connectivity.
If that plan pans out, Jumia -- which controls at least part of the supply chain with its own logistics segment -- could monopolize African e-commerce.
Growing fast, spending faster
By certain metrics, Jumia's most recent quarterly stats paint a picture of an expanding company. In the third quarter, Jumia's orders increased 28%; total payment volume was up 15%; and annual active consumers and gross merchandise volume both rose 8% year over year.
The company also saw an 8.5% uptick in revenue during this time frame -- not a blockbuster result but not terrible, either. Turning to the bottom line, however, there's a potential problem: Jumia sustained a $64 million operating loss, which nearly doubled from the prior-year period.
How did Jumia manage to turn $43 million in third-quarter revenue into a $64 million loss? To invoke a famous I Love Lucy catch phrase, the company has some 'splaining to do. The $22 million "fulfillment expense" may have been a necessary part of doing businesses (today's customers want their packages quickly, after all), but spending $24 million on "sales and advertising expense" -- a huge jump compared to the $7 million spent on that category last year -- is harder to justify.
A shallow victory
Unfortunately, Jumia's 228% year-over-year increase in sales and advertising spending comes with little in the way of explanation. There was mention of Jumia seeking "to reignite the growth engine on the back of 18 months of reduced marketing expense," though making up for lost time might not be a sufficient excuse for concerned shareholders, many of whom are likely in the red on their investment and are hoping for a pivot to profitability (for the company, and for themselves).
Jumia and its stakeholders did get a quick bump when the company released its Black Friday 2021 data, which wasn't factored into the third-quarter release. For Jumia, Black Friday wasn't just a single day event -- it covered a campaign that lasted from Nov. 5 to Nov. 30.
For what it's worth, Jumia recorded its biggest Black Friday campaign last year with gross merchandise value up 30% and orders up 39% year over year. These stats might feel like a victory, but they did little to stall the long-term decline for Jumia stock, and even less to quell concerns about the company's spending habits.
Show, don't tell
Going forward, even if Jumia does provide assurances to investors that its drastic pace of marketing spend isn't a permanent state of affairs, investors should expect to actually see smaller outlays in this category. With that, Jumia may be able to steer toward a profitable state rather than quickly away from it.
Until that happens, bottom-line-focused investors will be hard-pressed to hold Jumia stock with confidence. Those more comfortable with risk, on the other hand, might do well with Jumia in five or 10 years as a wager on Africa's internet expansion as the company's dominance in the region's e-commerce ecosystem is undeniable.
