It's hardly surprising that Jumia Technologies (JMIA 3.60%) has struggled recently. Growth stocks have been squashed by the market due to inflationary pressures, rising interest rates, and ongoing political woes involving Russia and Ukraine. In times of great uncertainty, investors tend to exit positions in speculative stocks and flock to safer assets. Given Jumia, a Nigerian-based e-commerce platform, is highly unprofitable and not yet cash-flow positive, most investors have lost all interest.
As a result, the company has watched its share price plummet 77% over a one-year span. Jumia has a long way to go until it's proven successful, but the ongoing sell-off surely makes the company more attractive than it has been in quite some time. Equipped with 1.4 billion consumers, Africa is the last frontier for investors. And given that Jumia is the continent's pacesetter in e-commerce, I believe the company deserves a look. Here are two reasons to buy Jumia today and one pitfall to be aware of.
Growth is improving
After struggling to expand the business in past years, Jumia is finally starting to experience sturdy growth. In its final quarter of 2021, the company grew sales by 26% year over year, up to $62 million. Active consumers and total orders finished at 3.8 million and 11.3 million in the fourth quarter, translating to a 27% and 40% increase year over year, respectively. Recently, management decided to make the shift toward everyday product categories on the company's e-commerce marketplace, as opposed to phones and electronics.
At the end of 2019, the company's sales were split evenly between phones and electronics and everyday items. Today, everyday products make up 65% of sales. This was a shrewd strategic decision by management for the mere fact that consumers need to buy day-to-day products on a more regular basis than phones and electronics. Consequently, this drives more visits to the platform and thus consistent growth in order volume.
JumiaPay's potential is through the roof
JumiaPay, which offers consumers a safe and secure way to make purchases on the company's e-commerce platform, has an immense amount of potential in the long run. JumiaPay transactions and total payment volume (TPV) grew 46% and 29% year over year in the fourth quarter, up to 3.9 million and $90.5 million, respectively. Currently, JumiaPay is only offered on the company's own e-commerce marketplace, but Jumia has much larger aspirations for the mobile payment platform in the future.
Jumia recently partnered with ValU in Egypt to offer buy now, pay later (BNPL) options at checkout via JumiaPay. BNPL allows consumers to pay for items in interest-free installments over a specific period of time. It's an up-and-coming concept with a great deal of upside, as seen in the United States with companies including Affirm and PayPal Holdings.
The company also plans to expand JumiaPay off-platform in 2022, meaning consumers will be able to execute mobile payments to other merchants beyond Jumia. This is a major step for Jumia in becoming one of Africa's leading fintech companies, in addition to acting as the continent's top e-commerce platform. And given that Africans exchanged $490 billion using mobile money providers in 2020, the sky truly is the limit for what JumiaPay could become.
But profitability is out of sight
There's certainly a chance that Jumia will never achieve a positive bottom line. The company continues to spend aggressively on marketing and technology to expand its operations, but this has proved to be rather costly. Jumia ended 2021 with an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $196.7 million, a greater loss than 2020's $136.3 million.
And with plans to continue investing in order to grow its business moving forward, investors can expect a similar result in 2022. Management is guiding for an adjusted EBITDA loss between $200 million and $220 million this upcoming year, again translating to a wider loss than the previous period. It's quite clear that investors will need to exercise patience as the company looks to ramp up its investments for the foreseeable future. There are many moving parts that need to come together in order for Jumia to succeed in the long run, but this company could be a real moneymaker if it makes it through the gauntlet to the other side.
What should investors do?
Jumia is a risky investment. I'm bullish on the African growth story, but I'm also aware of the challenges that await Jumia in the future. The company is currently trading at all-time lows, so now is the time to pull the trigger if you're interested. Know going into it that Jumia has a long road ahead before achieving profitability. This company requires the utmost patience as it navigates its journey to becoming Africa's premier e-commerce marketplace. Those willing to ride it out could be greatly rewarded in the long run.