25.1 C

Will Jumia Stock Pay Off Big for Investors?


Jumia Technologies (NYSE: JMIA) hasn’t escaped the 2022 bear market — it’s down 65% year to date, and it isn’t hard to see why. Despite enjoying a first-mover advantage in Africa’s e-commerce market, the Nigerian company has failed thus far to achieve profitability or rapid revenue growth. But what might the future hold for this embattled enterprise?

What is Jumia Technologies?

The self-styled ‘Amazon of Africa’ is primarily a third-party online marketplace designed to connect buyers and sellers in key economies such as Nigeria, Egypt, and South Africa. As one of the first publicly traded companies to tackle this opportunity in Africa, Jumia should be benefiting from both brand recognition and a first-mover advantage. But so far, its growth story isn’t playing out as well as investors might have hoped.

Red arrow trending downwards

Image source: Getty Images

Jumia’s third-quarter earnings, for example, were uninspiring. Revenue grew 18.4% year over year to $50.5 million amid a spike in commissions, advertising, and value-added services such as logistics. But while Jumia seems to be using price hikes to squeeze more money out of its existing users and merchants, the platform’s organic growth was weak.

The number of active customers increased by just 3.5% to 3.1 million in Q3, while gross merchandise value (the total value of items sold on the platform) inched up 1.1% to $240.7 million. Jumia’s top-line stagnation is surprising considering that African e-commerce is widely considered to be a growth opportunity; it’s expected to expand at an annualized rate of 17% to $84.5 billion by 2027, according to Statista.

Is there a pathway to profitability?

Perhaps Jumia’s flat top line is a sign of its priorities. In its latest earnings press release, management’s commentary focused more on the company’s path to achieving profitability than on how it might drive revenue growth. As a part of this push, the company has replaced co-CEOS Jeremy Hodara and Sacha Poignonnec with acting CEO Francis Dufay, who was previously responsible for the company’s e-commerce business across Africa.

Its search for a permanent CEO is ongoing, but the stated goals behind the leadership reshuffle were to help realign the company’s focus on its core e-commerce operations and reduce its operating losses to set the business on a clear path to profitability.

So far, those efforts are showing mixed results. While Jumia’s third-quarter operating loss narrowed from $64 million to $43.2 million, that was mainly because it increased the prices it charges its merchants for logistics and advertising services. Price hikes can’t be repeated indefinitely, and it is unclear how long Jumia can maintain margin improvements without its business scaling up.

Further, the focus on profitability over growth could leave Jumia ceding ground to rivals such as Amazon, which is expected to expand its e-commerce platform into South Africa and Nigeria in 2023.

Is the stock cheap enough?

While Jumia’s substantial share price declines might give it some appeal to value-hungry investors, look before you leap. While the stock’s price-to-sales ratio of 2.1 is cheaper than the S&P 500’s average ratio of 2.4, that discount doesn’t look big enough to compensate for the company’s stagnant revenue and operational losses. Investors should give Jumia shares a wide berth until it resolves those challenges.

10 stocks we like better than Jumia Technologies AG-ADR
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Jumia Technologies AG-ADR wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 7, 2022

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Please enter your comment!
Please enter your name here

Related articles

Recent articles