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Can Jumia Earn Back Its Amazon of Africa Title?

Jumia's(NYSE:JMIA) public life is only a few months old. Founded in , the online African merchant went public in April Investors compared Jumia with Amazon in the U.S. and MercadoLibre in Latin America and rushed to invest. Consequently, the stock price climbed as high as $52 per share from the IPO price of $ 

Shortly after the IPO, Citron Research, a well-known short-seller, published a controversial report that referred to several unverified discrepancies in the company's reported numbers to accuse Jumia of significant fraud. Since then, Jumia's stock price is significantly lower than its short-lived, all-time high level, and even fell under the IPO price. Now that IPO excitement subsided, it's time to dig in and decide whether Jumia is worthy of its almighty title of the Amazon of Africa.

Jumia stock performace

Source: YCharts

Is there a realistic path to success for Jumia? 

The company's business is broken into three parts: an e-commerce marketplace, online delivery logistics, and an online payment platform. It operates across 14 countries in Africa, and more than 50% of its revenue comes from Nigeria and Egypt. What's more, less than 1% of African commerce happens online, making Jumia's opportunity for growth massive. But according to the company's Q2 earnings report, Jumia burns $ million to run its operations and has $ million in cash and equivalents to fund them. In other words, Jumia has slightly more than one year's worth of its operating costs in the bank, before needing to raise money. Can Jumia raise the funds it needs to grow?

With its brand damages and controversies, a secondary public offering may not be possible any time soon. But during its IPO, Mastercard (NYSE: MA)invested more than $50 million in the company. Jumia still has the option to raise money from more significant players like Mastercard that may want to leverage the opportunity as a gateway to enter Africa.

How can Jumia win over investors?

Jumia's first competitive moat is its scale and presence across Africa. With almost five million users and 81, sellers, it's not difficult to imagine large international brands leveraging Jumia as a way to break into Africa. We've seen a similar model to work in China. 

Jumia also has an asset-light model. Jumia has a partnership with Vivo Energy-Shell's licensee in Africa. The company's sellers and customers can drop off, pick up, and even pay for their orders across Vivo Energy's locations. Having an already established network of sites to pay and pick up orders is a unique way to eliminate the need for operating a delivery fleet. 

A shopping cart on top of a keyboard with boxes in it

Image Source: Getty Images

Can Jumia continue to grow despite the lack of an e-commerce infrastructure?

The company still has the option of growing through digital-only transactions. Online-only orders such as paying for bills, purchasing music, or buying airline tickets, for example, do not need to be delivered physically but maintain a firm place within an African consumer base.

Also, Jumia's comprehensive technology platform connects banks and financial institutions to sellers and consumers. While JumiaPay handles e-commerce transactions, it also operates as a marketplace for other financial products such as loan and financing services. Jumia makes a commission off of those connections. It seems that the company has a few sources of revenue to continue its rapid growth. 

What about Citron's fraud allegations?

Despite what Citron wants investors to believe, trailblazing in the e-commerce and online payment market, especially when there is a lack of digital and physical delivery infrastructure, is inevitably prone to fraud. Early users of PayPal may remember the large-scale fraudulent activities on the platform. Fraud incidences are predictable and understandable in such early stages of significant shifts in consumer behavior away from the status quo. The way the company solves those issues matters more than the fact that such fraudulent incidents are widespread in the company's core market.

Final takeaway

Assuming that Jumia is leading the African consumers' transition to the digital economy, it is going to grow significantly larger than its current billion-dollar valuation. The company has a large-enough scale that can develop further through digital-only transactions and local partnerships with existing brick and mortar facilities. Institutional and corporate investors can use Jumia to access the African market, and as such, they may be willing to fund its path to becoming the Amazon of Africa. 

However, the growth phase is going to take a long time to pan. That's not bad news, as some may assume. A lengthy growth phase means that there will be an extended period (think in years) for savvy investors to pick up a few shares. I don't own Jumia's shares yet, but I'm closely monitoring the company's progress. As they say, good things come to those with patience. Jumia has what it takes to be the Amazon of Africa, but the path to get there is long and arduous.


It’s been a tumultuous, loss-making year since the billion-dollar IPO of Jumia, “Africa’s Amazon”

A year ago this week, Jumia, the largest e-commerce operator across Africa, entered uncharted territory: it became the first major African-focused tech company to list on the New York Stock Exchange (NYSE).

Jumia’s listing was rightly heralded as a major milestone for Africa’s fledgling tech ecosystems and for a company which had expanded to 14 African countries with businesses across several verticals since it was first founded in Nigeria in

Ahead of its listing, investors with a track record of backing e-commerce ventures in emerging markets predicted that the novelty of an Africa-focused tech company listing on NYSE would initially prove a draw, especially among retail investors. And that turned out to be the case in the company’s first days of trading. Jumia went on to raise $ million through its initial public offering (IPO) and its stock soared on its opening day of trading, closing 75% up valuing the company at over $3 billion.

But one year later, those fortunes have changed drastically.

After peaking at a high of $ within its first week of trading in April , the stock had crashed below its IPO price by August. Jumia lost its “unicorn” status by September and the stock now trades just over $3 or around $ million in market capitalization.

That initial Cinderella run was the result of “a confluence of market conditions, a scarcity of this kind of opportunity [an African tech company listing in New York] and a lack of interrogation because they were so many reputable anchor investors already in the business,” says Aly-Khan Satchu, a Nairobi-based financial and investment analyst. Those investors included Africa’s largest telecoms operator MTN, French insurance giant AXA and Swedish telecoms operator Millicom. Global payments giant Mastercard also invested $56 million in a private stock sale ahead of the IPO.

Jumia also benefited from a “positive spillover effect” with other high-profile tech IPOs also slated for last year, from Uber and Lyft to AirBnB and Slack, Satchu argues. “That point in time was about peak optimism about these [tech] opportunities.”

Road bumps

Jumia’s first PR battle amid its IPO came in form of a debate over its identity. Despite being incorporated in Germany, listed in New York and headquartered in Dubai, Jumia’s definition of itself as African in its S1 filing prompted intense scrutiny from African industry insiders. As Jumia CEO and co-founder, Sacha Poignonnec, told Quartz Africa at the time, the company’s identity stems from its focus “to bring some value to the African consumers.”


But while that debate was more about nuance, subsequent concerns around Jumia were more about substance.

The company’s first post-IPO earnings call came on the heels of damaging allegations of fraud and “material discrepancies” in its S1 filing by Citron Research, a small, controversial Los Angeles-based stock short seller. Those claims were brushed off by the company’s leadership which maintained operations were “transparent” even as its share price tumbled.

Four months later however, the claims of fraud came from within the company itself as Jumia disclosed it had uncovered instances of improper orders being placed and subsequently cancelled on its marketplace platform. Jumia claimed the fraudulent orders had no impact on its financial statements even though they had wrongly inflated its order volume by around $ million.

Further, the company also revealed “several” class action lawsuits had been filed against it over “alleged misstatements and omissions” in its launch prospectus—a core claim by Citron Research.

Pursuing profits

Jumia has told investors it has a target of attaining profitability by It is still reporting major million-dollar quarterly losses but not trending towards reducing losses.

In the fourth quarter of , operating losses expanded by 15% to € million ($ million) year-on-year while full year operating losses widened by 34%. While Jumia has now stepped up cost-cutting measures, shutting down operations in Rwanda, Tanzania and Cameroon in the last six months, it has also doubled down on its existing markets, exploring ways to widen its user base, order numbers and revenue. Last July, it partnered with Vivo Energy (owner of Engen and Shell-branded petrol stations across Africa) to set up pick-up stations at Vivo’s over 2, fuel station outlets, allowing customers place and pick up orders as well as make payments. In addition to easing last-mile delivery challenges, the move also aimed at capturing and on-boarding potential offline customers as well.

But while it continues to tweak its e-commerce and marketplace models, Jumia is also betting on a fintech pivot to drive up revenues. After months of testing and using Jumia Pay, its in-house payments solution, within its marketplace ecosystem, Jumia has stepped up plans to spin off the service and open it up to third party users. The service which is now live in six African countries has already shown promise with payments volume and value more than doubling last year, according to Jumia’s financial statements.  In addition to payment processing for third party users, Jumia Pay’s off-platform strategy also includes facilitating payments through QR codes as well as powering mobile point of sale systems.

But competing in Africa’s  already crowded fintech space presents Jumia with a new set of challenges—and deep-pocketed rivals. In Nigeria, for instance, payments services OPay and PalmPay received over $ million in funding predominantly from Chinese backers last year alone.

It’s yet unclear if or when Jumia’s long-term bet and investment in African e-commerce will pay off for investors. But one exit possibility could come in form an acquisition by a global e-commerce player, Satchu claims. “They do have a first mover advantage and with these sort of valuations, it might be attractive for a bigger player to scoop them up as a quick market entry point.” It’s an oft-cited exit theory among local industry insiders.

But while that may yet be the case, the recent exit of Jumia’s earliest major investor Rocket Internet, which sold its 11% stake at the start of the month, may prompt watchers to do a double take.

“The valuation around which they got out was not a stellar one and therefore counter-intuitively, the message they’re sending is that ‘we’re prepared to take what we get now rather than hang on for the business to right-size itself’,” Satchu says. ”It was a very negative signal that one for their earliest investors is prepared to cash out and run.”

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African e-commerce startup Jumia’s shares open at $ in NYSE IPO

Pan-African e-commerce company Jumia listed on the New York Stock Exchange today, with shares beginning trading at $ under ticker symbol JMIA. This comes four weeks after CEO Sacha Poignonnec confirmed the IPO to TechCrunch and Jumia filed SEC documents.

With the public offering, Jumia becomes the first startup from Africa to list on a major global exchange.

In an updated SEC filing, Jumia indicated it is offering 13,, ADR shares for an opening price spread of $13 to $16 per share, representing percent of all company shares. The IPO could raise up to $ million for the internet venture.

Since the original announcement (and reflected in the latest SEC docs), Mastercard Europe pre-purchased $50 million in Jumia ordinary shares.

The IPO creates another milestone for Jumia. The company in became the first African startup unicorn, achieving a $1 billion valuation after a funding round that included Goldman Sachs, AXA and MTN.

There’s a lot to break down on Jumia’s going public. The company is often dubbed the &#;Amazon of Africa,&#; and like Amazon, Jumia comes with its own mixed buzz. Jumia&#;s SEC F-1 prospectus offers us more insight into the venture, and perhaps any startup from Africa, thus far.

About Jumia

Founded in Lagos in with Rocket Internet backing, Jumia now operates multiple online verticals in 14 African countries. Goods and services lines include Jumia Food (an online takeout service), Jumia Flights (for travel bookings) and Jumia Deals (for classifieds). Jumia processed more than 13 million packages in , according to company data.

Jumia’s original co-founders included Nigerian tech entrepreneurs Tunde Kehinde and Raphael Afaedor, but both departed in to form other startups in fintech and logistics.

Starting in Nigeria, the company created many of the components for its digital sales operations. This includes its JumiaPay payment platform and a delivery service of trucks and motorbikes that have become ubiquitous with the Lagos landscape. Jumia has extended this infrastructure as an e-commerce fulfillment product called Jumia Services.

Jumia has also opened itself up to Africa&#;s traders by allowing local merchants to harness Jumia to sell online. The company has more than 80, active sellers on the platform using the company&#;s payment, delivery and data-analytics services, Jumia Nigeria CEO Juliet Anammah told TechCrunch previously.

The most popular goods on Jumia’s shopping site include smartphones, washing machines, fashion items, women’s hair care products and inch TVs, according to Anammah.

Jumia an African startup?

Like Amazon, Jumia brings its own mix of supporters and critics. On the critical side, there are questions of whether it&#;s actually an African startup. The parent for Jumia Group is incorporated in Germany and current CEOs Jeremy Hodara and Sacha Poignonnec are French.

On the flipside, original Jumia co-founders (Kehinde and Afaedor) are African. The company is headquartered (and also incorporated) in Africa (Lagos), operates exclusively in Africa, pays taxes on the continent, employs 5, people in Africa (page of K-1) and the CEO of its largest country operation (Nigeria) Juliet Anammah is Nigerian.

The Africa authenticity debate often shifts into questions of a Jumia diversity deficit, which is of course important from Silicon Valley to Nairobi. The company&#;s senior management and board is a mix of Africans and expats. Golden State Warriors basketball player and tech investor Andre Iguodala joined Jumia&#;s board this spring with a priority on &#;diversity and making sure the African culture is in the company,&#; he told TechCrunch.

Can Jumia turn a profit?

The Jumia authenticity and diversity debates will no doubt roll on. But the biggest question — the driver behind the VC, the IPO, the founders and the people buying Jumia&#;s shares — is whether the startup can generate profits and ROI.

Obviously some of the world&#;s top venture investors, such as Jumia backers Goldman, AXA and Mastercard, think so. But for Jumia skeptics, there are the big losses. The company has generated years and years of losses, including negative EBITDA of € million in compared to revenues of € that same year.

To be fair to Jumia, most startups (e-commerce startups in particular) rack up losses for years before getting into the black. And operating in a greenfield sector in Africa — where it had to create much of the surrounding infrastructure to do B2C online sales — has presented higher costs for Jumia than e-commerce startups elsewhere.

On the prospects for Jumia&#;s profitability, two things to watch will be Jumia&#;s fulfillment expenses and a shift to more revenue from its non-goods-delivery services, which offer lower unit costs and higher-margins. Per Jumia&#;s SEC F-1 index (see above), freight and shipping make up more than half of its fulfillment expenses.

So Jumia has not turned a profit, but its revenues have increased steadily, up 11 percent to € million (roughly $ million) in and up again to € million (or $ million) in If the company boosts customer acquisition and lowers fulfillment costs — which could come from more internet services revenue and platform investment with IPO capital — it could close the gap between revenues and losses. This reflects the equation for most e-commerce startups. With the IPO, Jumia will have to publish its first full public financials in , which will provide a better picture of profitability prospects.

Jumia&#;s IPO and African e-commerce?

There is, of course, a bigger play in Jumia&#;s IPO. One connected to global e-commerce and the future of online retail in Africa.

Jumia going public comes as Africa&#;s e-commerce landscape has seen its share of ups and downs, notably several failures in DealDey shutting down and the distressed acquisition of Nigerian e-commerce hopeful

As for the big global names, Alibaba has talked about Africa expansion, but for the moment has not entered in full.

Amazon offers limited e-commerce sales on the continent, but more notably, has started offering AWS services in Africa.

And this week, DHL came on the scene, launching its Africa eShop platform with global retailers on board, in partnership with MallforAfrica&#;s Link Commerce fulfillment service.

Competition to capture Africa&#;s digitizing consumer markets — expected to spend $2 billion online by , according to McKinsey — could get fierce, with more global entries, acquisitions and competition on fulfillment services all part of the mix.

And finally, the outcome of Jumia&#;s IPO carries weight even for its competitors. &#;Many things, like business decisions and VC investments across Africa&#;s e-commerce sector are on hold,&#; an African e-commerce exec told TechCrunch on background.

&#;Everyone&#;s waiting to see what happens with Jumia&#;s IPO and how they perform,&#; the exec said.

So the share price connected to NYSE ticker sign JMIA could reflect not just investor confidence in Jumia, but investor confidence in African e-commerce overall.

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Is Jumia the Amazon of Africa or the Overstock?

Almost every growth stock wants to be known as the Amazon (NASDAQ:AMZN) of its sector.

After all, Amazon has been one of the best-performing stocks of the last generation, and that growth came largely when the company wasn't even profitable. Drawing comparisons to Amazon is a way for management to say that its company has big growth potential but isn't yet profitable, because it's investing in that growth opportunity.

Uber, for example, called itself the Amazon of transportation several times in the run-up to its IPO. Another company that has been granted the Amazon halo is Jumia Technologies (NYSE:JMIA), often referred to in the financial press as the "Amazon of Africa." In some ways, the comparison makes sense. Jumia is Africa's largest e-commerce company, operating both as a direct seller and a third-party marketplace, and it has its own logistics and delivery network. In addition to its core in e-commerce, the company has a number of other parallel businesses, including food delivery, travel bookings, and Groupon-like deals. However, beyond the basic similarities, Jumia differs from Amazon in several important ways.

A Jumia warehouse on the street in Morocco

Image source: Jumia Technologies.

Early history

Like Amazon, Jumia is still led by its founders, but Amazon and Jumia had different approaches in their early days. Founder Jeff Bezos started Amazon as an online bookseller, thinking that books would be an advantageous category for the newly emerging World Wide Web. From books, the company expanded into music and video, and then other categories like electronics and home goods, using the same strategy that had driven its success and rapid growth selling books. 

Jumia, on the other hand, seemed to launch in with a blanket approach to the internet. Jumia debuted in Nigeria, and moved into countries like Egypt, Morocco, and South Africa shortly after. The following year it launched Jumia Travel, a hotel-booking platform, and Jumia Food, a food-delivery business.

Despite launching in multiple geographic markets and business categories, Jumia is still much smaller today than Amazon was when it was eight years old. In , Jumia finished with million euros in revenue, and that figure looks set to decline this year, as the company has shifted its focus to growing third-party marketplace sales, which bring in less revenue than direct sales. In contrast, in , when Amazon was the same age, it had $ billion in sales. By , its second full year of operations, Amazon had roughly the same amount of revenue as Jumia has now.

Jumia has also had a number of false starts in its business. Last year, it pulled out of three markets, Rwanda, Cameroon, and Tanzania, so it could allocate more resources to higher-growth opportunities. It also entered into an agreement with Travelstart, another online travel agency, to redirect Jumia Travel traffic to Travelstart.

Market share versus profitability

One of the defining characteristics throughout Amazon's history has been its focus on market share over profitability. The company seeks to build out a customer base before worrying about profitability, as Bezos believes market power comes from owning the customer base. 

While many other companies claim a similar strategy, enacting it is a tall order, especially when financial statements show wide losses.

Jumia, for instance, professed in its IPO prospectus to "build for the long term," but recently the company seems more concerned about profitability than growing the top line and gaining market share. In the third quarter, its gross merchandise volume fell 28% to million euros, as the company shifts away from one-time purchases (like smartphones) and toward repeatable categories (such as beauty, fashion, and personal care) in order to support its path to profitability.

That strategy may eventually pay off, but right now Jumia simply doesn't have the scale to deliver meaningful profits. Even as it's trimmed its losses this year, it posted an operating loss of million euros through the first three quarters of , exceeding its revenue.

Not all e-commerce companies are created equal

E-commerce has been a consistent growth market in the world since its inception a generation ago, and will continue to expand for the foreseeable future. However, that doesn't mean that every e-commerce stock will be a winner. Some legacy e-commerce stocks like, for example, have historically lagged the market.

Amazon is the best-known and most successful e-commerce company in the U.S., but e-commerce isn't the only reason for its success. Its most profitable business is cloud computing, while programs like Amazon Prime and Fulfillment by Amazon have been the engine for profits in North American e-commerce. However, online retail has never been an easy way to make money, and Amazon's own results bear that out. Amazon's international e-commerce business was losing money as recently as last year, when it posted an operating loss of $ billion.

That may be evidence that Jumia can have profitability or growth, but both will be very difficult to achieve, and will likely take several years. The company is operating in a part of the world where many of its customers don't have addresses or bank accounts, showing the challenges in building out e-commerce networks when little of the necessary infrastructure is in place. The opportunity is appealing as the company is the leader in African e-commerce, but given the obstacles in front of it, success is far from guaranteed.


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Why Jumia Is Beating Amazon And Alibaba In Africa

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