When Jumia (JMIA 1.77%) went public four years ago, many investors hailed the e-commerce company as the "Amazon (AMZN 3.89%) of Africa." It had already launched its marketplace in 14 countries, which accounted for 72% of Africa's total GDP, and the continent's e-commerce sales were expected to soar as income levels and internet penetration rates improved. It made its market debut at $14.50 a share and hit an all-time high of $65.51 on Feb. 10, 2021, but now trades at just $4.
Jumia lost its luster as its revenue growth cooled off, its losses widened, and rising interest rates drove investors away from more speculative growth stocks. But could this forgotten e-commerce company mount a comeback and still become the Amazon of Africa? Let's review its recent slowdown and long-term challenges to decide.
Image source: Getty Images.
Why did the bulls abandon Jumia?
Jumia was originally a first-party online retailer that only took on its own inventories, but it transitioned into a third-party marketplace in 2016. That transformation was aimed at reducing its expenses, but its operating and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) losses continued to widen.
|
Metric |
2020 |
2021 |
2022 |
|---|---|---|---|
|
Revenue |
$159.4 million |
$177.9 million |
$221.9 million |
|
Operating Income |
($170.3 million) |
($240.9 million) |
($227.1 million) |
|
Adjusted EBITDA |
($136.3 million) |
($196.7 million) |
($207.2 million) |
Data source: Jumia.
Unlike many other e-commerce companies, Jumia didn't benefit from accelerated online shopping trends throughout the pandemic. Instead, its revenue fell 13% in 2020 as the crisis curbed consumer spending and disrupted its supply chain and logistics networks. That slowdown -- along with the high costs of expanding its own infrastructure and Jumia Pay platform -- drove Jumia to shut down its marketplaces in Cameroon, Tanzania, and Rwanda; aggressively downsize its first-party marketplace; and start selling a higher mix of lower-margin consumer staples to attract lower-income shoppers.
Its revenue rose 12% in 2021 and grew 25% in 2022, but its gross merchandise volume (GMV, the value of all goods sold on its platform) only rose 6% as its growth in orders, annual active customers, and total payment volume (TPV) decelerated.
|
Metric |
2020 |
2021 |
2022 |
|---|---|---|---|
|
GMV Growth (YOY) |
(19%) |
4% |
6% |
|
Orders Growth (YOY) |
5% |
22% |
14% |
|
Annual Active Consumers Growth (YOY) |
12% |
17% |
4% |
|
TPV Growth (YOY) |
58% |
17% |
8% |
Data source: Jumia. YOY = Year over year.
That slowing growth is troubling for two reasons. First, Jumia is still a tiny company that is expected to generate the equivalent of 0.04% of Amazon's revenue this year.
For it to be a promising growth play, it needs to grow at a much faster rate than the market leader. Instead, analysts expect Jumia's revenue to decline 7% to $205 million this year as Amazon's revenue rises 9% to $560.9 billion.
Second, Jumia might have established a first-mover advantage in Africa, but it faces stiff competition from both regional players like Konga.com as well as Amazon itself, which plans to launch its marketplace in South Africa and Nigeria by the end of this year. Those fierce competitors could squeeze Jumia's margins and cause it to incur even steeper losses.
NYSE: JMIA
Key Data Points
Jumia probably isn't the next Amazon
For 2023, analysts expect Jumia's revenue to decline 8% to $191 million as it narrows its net loss to $110 million. Those cost-cutting measures represent a step in the right direction, and it probably won't run out of cash anytime soon because it still had $205 million in liquidity on its balance sheet at the end of its latest quarter.
Jumia might seem cheap at 2 times this year's sales, but it doesn't seem likely that investors will get too excited about this fallen stock while other overseas e-commerce companies -- like Latin America's MercadoLibre and China's Pinduoduo -- are generating much stronger revenue growth with consistent profits.
The African e-commerce market could still grow at a compound annual growth rate (CAGR) of 15% from 2023 to 2028, according to IMARC, but Jumia could struggle to stay relevant in this increasingly crowded market. Jumia only served 2.4 million quarterly active consumers in the first quarter of 2023, which represented a 22.5% decline from a year earlier and a 25% drop from the fourth quarter of 2022.
So for now, Jumia doesn't look like the next Amazon. Instead, it merely resembles one of the countless online marketplaces that Amazon crushed on its way to becoming the world's largest e-commerce company. Jumia isn't down for the count yet, but it hasn't proven that it can survive long enough to see the African e-commerce market mature to its full potential.
