What happened
Shares of African e-commerce company Jumia Technologies (JMIA 3.18%) skyrocketed on Monday on news that it had partnered with United Parcel Service (UPS 0.14%). The company will provide shipping logistics to UPS, and this had Jumia stock up 29% as of 1 p.m. ET today.
So what
This is obviously bigger news for Jumia than for UPS, whose stock was down 1% as of this writing. The company sells products, operates a marketplace for itself and third parties, does advertising, and even processes payments. But it's historically struggled to gain large-scale adoption and turn profits.
Image source: Getty Images.
However, Jumia may now be carving out an important and sustainable niche in logistics. It's long incurred heavy costs for shipping logistics. But it's started to offer logistics as a service (LaaS) in its African markets, and it's catching on fast. For context, in the third quarter of 2021, it had just 200 LaaS customers. By the fourth quarter, it was up to a whopping 996.
Shipping logistics in Africa are historically complicated, and companies seem more than willing to pay Jumia to navigate the complexities. But today's news is huge because it gained one of the top global shipping companies in UPS. Expect Jumia's order volume to increase substantially in 2022 as a result of these recent customer wins.
Now what
In 2021, Jumia generated revenue of $178 million but registered an operating loss of $241 million. Its biggest line item was fulfillment expenses, showing how important it is to get this to a large enough scale to eventually be profitable. Gaining a big-fish partner like UPS certainly helps in that regard, though Jumia is likely still a long way off from turning an operating profit.
Investors, therefore, should celebrate today's news but temper near-term expectations, understanding that Jumia's underlying fundamentals will still take time to improve.
