What happened
Shares of Jumia Technologies (JMIA -3.55%) slumped 17.7% this week, according to data from S&P Global Market Intelligence. The African e-commerce company has a highly volatile stock price, and with the global markets going down this week, it is no surprise to see the stock fall so much.
It is also possible investors got nervous because of more executive turnover. As of this writing, shares of Jumia stock are down 54% this year.
So what
Jumia itself didn't put out any press releases, so it seems like global macroeconomic fears are hurting the company's shares. The U.S. just reported inflation of 9.1%, bringing down stock prices around the globe this week. High inflation around the world might negatively affect Jumia's operations.
How? For example, in one of its operating countries, Nigeria, inflation is approaching 20%. This means when Jumia is building out its e-commerce infrastructure, its costs might be rising quickly each year, making it tough to generate any sort of consistent profitability.
Investors should also be concerned about rising energy and food prices through the first half of 2022. In poorer countries in Africa, like the ones Jumia operates in, these categories make up a larger piece of consumer expenditures than in richer Western nations. This could squeeze customer spending on discretionary e-commerce items on Jumia's marketplace.
Lastly, the company continues to see turnover in its executive and management suite. This week, it announced that its CEO in Kenya, Betty Mwangi, would be stepping down for other opportunities. While not huge news, it is never good to see high employee turnover in your portfolio companies.
Now what
Jumia's stock is down, so you might think it is time to buy the dip. But investors should look closely at how unprofitable this business is. Through the first three months of 2022, it generated $47.6 million in revenue. On this revenue base, it burned $75.4 million in operating cash flow.
With only $87 million in cash on its balance sheet, Jumia is either going to have to quickly raise more capital or right-size its bloated expense base. Neither are optimal choices for existing shareholders.
Jumia is in a tough business (e-commerce) in nations with minimal infrastructure compared to places like North America, Western Europe, and East Asia. It will be extremely difficult for the company to generate positive cash flow, which should exclude it from your investment portfolio no matter how far its shares fall.
