Down 38% so far in 2022, the stock of Jumia Technologies (JMIA -2.22%) has been a punishing experience for investors. The e-commerce start-up has fallen far short of its ambition of becoming the "Amazon of Africa." But can management turn the ship around? Let's explore Jumia's strengths and weaknesses.
What Is Jumia?
Jumia, which was founded in 2012 and had its initial public offering (IPO) in 2019, is an Africa-focused e-commerce company operating a third-party marketplace where vendors buy and sell goods and services. On paper, the company is in the right place at the right time.
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Analysts at digital agency IMARC Group believe the African e-commerce opportunity had a compound annual growth rate (CAGR) of 40% between 2015 and 2020. And it expects this growth trend to continue as connectivity improves on the continent. Lockdowns and movement restrictions related to the pandemic also pushed digital adoption further into the mainstream.
But despite the seemingly favorable macro environment, Jumia has largely failed to create sustainable value for its investors, facing massive losses and a stock price down by around half from its IPO price of $14.50.
Business results are a mixed bag
First-quarter results suggest Jumia could be turning over a new leaf. Revenue spiked 44% year over year to $48 million. And the number of active consumers on its platform increased by 29% to 3.1 million in the period. But lately, the market is less forgiving of companies that post top-line growth without a realistic timeline to profitability, and Jumia faces some substantial challenges in this department.
While Jumia's merchandise volume is increasing, the average value of its orders is falling (down almost 10% to $27.10 year over year). This is due to a shift toward everyday product categories like toiletries instead of higher-margin items like phones and electronics.
Furthermore, consumer incentives, such as promotional discounts, eat up 15.1% of revenue, up from just 6.4% in the prior-year period. And it is unclear how well the company can maintain its growth without these potentially margin-eroding discounts.
The company posted a first-quarter adjusted EBITDA loss of $55.3 million. But the good news is that management believes adjusted EBITDA losses peaked in the fourth quarter of 2021 (when the company lost $70 million), and it expects improvements.
Jumia is also seeing progress in other parts of its business. The company has expanded into logistics as a service to offer warehousing, tracking, and last-mile delivery to third parties. It also plans to process payments on behalf of third-party businesses in the Nigerian market through its fintech platform Jumia Pay. Both ventures are in their early stages (value-added services were just 15% of first-quarter revenue) but could help diversify its business model.
Wait and see
Jumia is an early mover in a new and fast-growing industry, which is usually an advantage. But the company's pioneering position also exposes it to uncertainty. While revenue is growing at a respectable clip, the value of orders on its platform continues to fall, and profits are nowhere in sight. While Jumia may eventually pull itself together, investors should avoid the stock until the company resolves some of these challenges.
