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Jumia Technologies: The African E-Commerce And Digital Payment Services Opportunity

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Investment Thesis

Jumia (NYSE:JMIA) is simply a unsocial institution pinch an opportunity to go a awesome subordinate successful nan increasing African e-commerce market. The institution has besides made investments into different segments specified arsenic nutrient transportation and its ain financial services app JumiaPay. These investments mixed pinch its already starring position successful nan e-commerce marketplace makes Jumia an absorbing finance opportunity. About 2 years ago, Jumia reached its highest marketplace valuation astatine $5.1 billion, since past nan company's valuation has collapsed by much than 90% to its existent marketplace valuation of $368 million. This besides presents an absorbing opportunity arsenic investors could summation vulnerability to nan African region astatine a important discount compared to 2 years ago. However, location is simply a logic for this steep discount, Jumia operates successful nan African continent wherever it faces galore challenges and risks. Further to this, nan institution has besides knowledgeable a slowdown successful revenues and has depleted complete 50% of its resources connected its maturation acceleration strategy. Taking these factors into information I see this banal to beryllium a hold. It presents a very charismatic opportunity to summation vulnerability to nan African continent which is expected to acquisition accelerated maturation during nan adjacent years, but it besides presents important risks which cannot beryllium ignored.

Company Description

Jumia is simply a pan-African e-commerce institution pinch a divers group of 100K sellers offering equipment crossed a wide scope of categories including manner and appeal, beauty and individual care, location and living, accelerated moving user goods, smartphones, and different electronics. Additionally, Jumia offers different connected request services to its users specified arsenic its Jumia Food platform, including delivery, from restaurants, market shops and convenience outlets. Furthermore, JumiaPay app offers a number of integer manner services including inferior bills payment, airtime recharge, gaming and entertainment, carrier ticketing arsenic good arsenic financial services specified arsenic micro-loans, insurance, aliases savings products. These services thief nan institution deduce revenues from its marketplace which is surgery into different streams including, income of goods, commissions, fulfillment, trading & advertising, and value-added services.

Finally, it should beryllium mentioned that nan institution is progressive successful 3 regions of Africa and successful a full of eleven countries. These eleven countries collectively correspond much than 600 cardinal people, astir 70% of Africa's net users and astir 68% of Africa's $2.9 trillion GDP (2021).

Financial Highlights

Jumia Financial Highlights

Jumia Financial Highlights (Company Annual and Quarterly Reports)

Given Jumia is simply a institution which is still successful its maturation phase, it remains to go profitable. As specified nan institution has relied connected outer financing successful bid to proceed operations. The institution was capable to bolster its equilibrium expanse done proceeds from 2 different offerings successful 2020 and 2021. These offerings helped Jumia person $570 cardinal and person nan basal liquidity to execute its maturation acceleration strategy. This strategy is already successful action pinch investments targeted for accrued user adoption, advertising, personification acquisition regarding Jumia's platform, and investments successful exertion and content. These investments person yielded results pinch yearly progressive reaching 8.4 million, Gross Merchandise Value ("GMV") reaching nan $1 cardinal mark, and orders totaling $39 cardinal astatine nan end of 2022.

Theses finance person helped Jumia regain its momentum and acquisition gross maturation arsenic nan institution suffered a steep diminution successful revenues during nan pandemic. Saying this, nan institution has besides knowledgeable important losses during nan past 3 years. Despite these losses guidance keeps making important investments successful R&D, spending astir 20% to 25% of income successful R&D connected yearly basis. Management has been capable to support investing while experiencing losses because of nan beardown equilibrium expanse it was capable to build done nan antecedently mentioned offerings wherever nan institution received $570 million. However, nan losses are already creeping into nan equilibrium expanse and person depleted nan company's liquidity position by 55%. This improvement will inhibit management's capacity to support throwing resources into its maturation acceleration strategy.

During 2022 nan institution accrued revenues by ~25% to $222 million, nevertheless it besides saw a rate outflow of $251 cardinal for nan year. This rate outflow results successful astir $63 cardinal rate pain complaint connected a quarterly basis. This has decreased nan company's liquidity position to $228 cardinal compared to $513 astatine nan extremity of 2021. Management will request to alteration nan quarterly rate pain complaint aliases nan institution will tally retired of money wrong 12 months. Management has already stated that it has put strategical actions successful spot to trim nan quarterly rate pain complaint and gave guidance that EBITDA nonaccomplishment for 2023 will alteration to $100 cardinal to $120 million. This alteration will beryllium accomplished done little advertizing expenses which will alteration by astir 50% to betwixt $30 cardinal and $40 million, compared to $76 cardinal during 2022. As good arsenic General & Administrative expenses decreasing to $90 cardinal and $105 million, compared to $122 cardinal successful 2022. These are welcomed news by shareholders, nevertheless because of nan decreasing liquidity position, it is simply a necessity to travel Jumia very intimately connected a quarterly basis.

African Market Opportunity

The African e-commerce scenery shows favorable macroeconomic and demographic conditions, which see a beardown GDP growth, a young population, and an expected accelerated summation successful mobile net penetration. According to nan United States International Trade Administration, Africa is group to acquisition a important summation successful e-commerce users crossed nan continent. Estimates show that by 2025, location will beryllium astir 520 cardinal e-commerce users pinch an e-commerce penetration complaint of 40%. This are fabulous numbers and time off a agelong runway for maturation arsenic penetration will not moreover beryllium astatine nan 50% mark.

e-Commerce penetration

e-Commerce penetration (USA International Trade Administration)

It is important to retrieve present that arsenic of 2021, Africa comprised astir 17% of nan world's population. More interestingly, sub-Saharan Africa organization is projected to double by 2050 and nan populations of Northern Africa and Western Africa are expected to turn by 46% by 2050. Not only is nan organization expected to turn but it will besides beryllium chiefly composed of young people, which should thrust nan e-commerce penetration rate.

Jumia is good positioned to return advantage of these trends. For example, according to nan Internet World Stats, arsenic of December 2020, Africa had an estimated 590 cardinal net users and 255 cardinal Facebook users crossed nan continent. 69% of net users and 75% of Facebook users lived successful nan regions successful which Jumia operates.

JumiaPay Opportunity

As of nan extremity of 2022, JumiaPay services were disposable successful 8 markets: Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, Tunisia, and Uganda. JumiaPay transactions and full costs measurement ("TPV") person some accrued importantly since nan institution motorboat this service. For reference nan number of JumiaPay transactions reached 12.5 cardinal successful 2022 which is flimsy summation compared to 12.1 cardinal successful 2021 while, TPV reached $285 million, which is an summation of 8.4% compared to 2021.

JumiaPay besides has a bully tailwind helping its maturation which is that Africa is nan starring continent successful position of mobile money exertion adoption. According to information from GSMA, Africa was location to 548 cardinal registered mobile money accounts successful 2020, 46% of mobile money accounts globally, pinch a transaction worth of $490 cardinal which equates to 64% of world mobile money transaction volume. Despite this, African nations are still good down user banking habits, pinch astir half of adults without a general slope account. As a result, galore of these economies are still rate based and coming not only challenges but besides opportunities for physics payments. The penetration of mobile payments would connection consumers nan opportunity to participate successful nan general economy, this successful move would thrust physics payments for e-commerce orders.

Payment methods successful selected African markets 2021

Payment methods successful selected African markets 2021 (USA International Trade Administration)

Given JumiaPay level allows customers to salary for equipment and services online and galore African nations needing much services and opportunities to make costs electronically it gives nan level a promising future. Saying this it remains to beryllium seen if JumiaPay will beryllium capable to leverage its geographic footprint and grow its services crossed nan continent.

Keys to Jumia's Survival and Success

Costs Reduction: As it tin beryllium seen from nan article, Jumia is facing a liquidity problem pinch its costs decreasing by much than 50% from 2021 to 2022. Further to this, its quarterly rate pain complaint stood astatine $63 million. Just by doing basal math, if Jumia continues burning rate astatine this complaint it will tally retired of money wrong 12 months. As discussed earlier successful nan article, guidance has taken strategical actions to trim costs which should springiness Jumia astir 2 years pinch its existent liquidity position.

Leverage Strengths crossed Geographical Footprint: Jumia is progressive successful 3 regions of Africa and successful a full of eleven countries. If guidance is capable to leverage its astir profitable services crossed these countries we could spot Jumia separator person to profitability. JumiaPay plays an important domiciled present arsenic it is simply a win-win script for some Jumia and nan African organization (discussed earlier successful nan article). Furthermore, Jumia needs to support enhancing its e-commerce offerings by presenting customers nan champion merchandise categories circumstantial to each country. For example, successful Senegal, earlier successful 2022, Jumia stepped up its commercialized efforts successful nan user electronics category. This led to a GMV summation twelvemonth complete twelvemonth of approx 90%.

Attract New Funding: Jumia has galore challenges successful nan African continent, nevertheless it has already acquired heavy section expertise, a trusted marque pinch complete 8 cardinal yearly progressive consumers, and powerful information insights. These attributes tin thief nan institution go profitable, nevertheless what guidance needs correct now is much time. The measurement to get clip is by attracting caller backing and springiness nan institution nan basal liquidity to stay live until it becomes profitable. The situation for Jumia's guidance present will beryllium to person investors that profitability is so close.

Jumia Faces Numerous Risks

As Jumia is progressive successful 1 of nan astir unstable regions successful nan world, its business faces respective risks which could inhibit nan company's operations and growth. In this conception I will outline a fewer of nan risks faced by nan company. However, it is important to statement that I will only talk nan astir important ones successful my opinion. This said, Jumia faces much risks and challenges successful nan African continent than nan ones discussed below.

Government Intervention: Governments successful Africa often intervene successful their economies and occasionally make important changes successful argumentation and regulations. Some governmental actions seen successful nan past include, nationalizations and expropriations, value controls, rate devaluations, mandatory increases connected wages and worker benefits, superior controls and limits connected imports, etc. Any of these actions by governments could person a detrimental effect connected Jumia. As nan institution is still successful its maturation face, it does not person nan capable resources to look adverse circumstances arsenic nan ones antecedently mentioned.

Terrorist Activities: To whomever follows nan African region, it is nary astonishment to spot nan violent group Boko Haram successful nan news. This group has caused economical instability successful Nigeria for aggregate years, causing markets, shops, and schools to adjacent and group to migrate retired of nan region. This group's harmful activities could person a antagonistic effect connected nan region's economies arsenic it weakens user confidence, diminishes purchasing powerfulness and harm businesses which run successful this region.

Economic Downturns: As Africa is simply a little developed region and economy, economical downturns are usually much importantly felt than successful developed economies. Economic downturns successful nan region tin origin rate volatility, steep declines successful economical activity, difficult financial conditions for countries arsenic a whole, among others. As Jumia operates successful aggregate African countries astatine nan aforesaid time, nan institution is astatine a greater consequence of an economical downturn successful 1 of these countries. Saying this, Africa is expected to turn handsomely successful nan coming years, somewhat mitigating this risk.

Currency Volatility: As antecedently mentioned rate fluctuations are a consequence for Jumia. As a consequence of operating successful different countries, Jumia needs to activity pinch currencies specified arsenic nan Nigerian Naira, nan Egyptian Pound, nan Kenyan Shilling, and nan West African CFA Franc. Fluctuations successful these currencies tin effect nan company's financial results, nan worth of its assets, liabilities, etc. Jumia's guidance needs to person a protection script for each these currencies which is simply a difficult task for immoderate guidance team.

Competition by Major Players: It is nary concealed that nan biggest world e-commerce companies, specified arsenic Amazon and Alibaba already person their eyes group successful nan African region, specified competitors person greater financial resources, technological advantages, arsenic good arsenic a well-known brand. In nan on-demand services, Jumia besides faces beardown title from good cognize players specified arsenic Glovo and Uber Eats. Finally, pinch JumiaPay, nan institution faces title from various financial institutions successful Africa. As it tin beryllium seen nan title is fierce successful each segments, nevertheless Jumia is besides a beardown competitor pinch heavy section expertise, a trusted marque pinch complete 8 cardinal yearly consumers, and powerful information insights of nan markets it operates in.

Valuation

Jumia's marketplace valuation has knowledgeable important volatility and a steep diminution complete nan past 2 years. The institution has gone from reaching its highest valuation astatine $5.1 billion, to crashing by much than 90% to its existent marketplace valuation of $368 million. This steep diminution successful valuation does not mean Jumia can't spell lower, nan institution faces respective risks 1 of them being moving retired of money successful nan adjacent mates years. So, moreover if nan institution has already suffered a steep diminution successful its marketplace valuation it does not mean it tin suffer different 90% decline. Saying this, nan institution could besides spell backmost to its glory days and admit successful marketplace valuation giving investors coagulated returns.

With nan existent marketplace valuation, nan company's value to revenues aggregate stands astatine 1.7x. I would reason that this is rather charismatic erstwhile compared to 2 years agone erstwhile this aggregate stood astatine 22.6x.

For nan valuation of nan company, I person utilized nan marketplace aggregate method of value to revenues utilizing early forecasted revenues. I person obtained nan analysts' revenues forecast from Seeking Alpha information and person progressively accrued nan marketplace aggregate from 2x to 3x by 2025. I person accrued nan marketplace aggregate done nan years arsenic nan tight economical situation we are presently successful will slice distant and multiples will commencement expanding again. If Jumia is capable to enactment solvent and is capable to support expanding its marketplace stock successful nan African e-commerce and different segments, we could spot its marketplace valuation reaching $1.1 cardinal by 2025. This is obscurity adjacent its all-time precocious nevertheless it is simply a bully betterment compared to its existent marketplace valuation.

Jumia Forecast

Jumia Forecast (Seeking Alpha)

Conclusion

Jumia presents an absorbing opportunity to summation vulnerability to nan African continent, nan institution is good positioned to return advantage of nan markets it is presently progressive successful and has nan imaginable to go a leader owed to its heavy section expertise, trusted marque pinch complete 8 cardinal yearly progressive consumers, and powerful information insights it is capable to get from these customers. Jumia besides benefits from Africa's large, fast-growing, and young population, increasing mobile net penetration, and expanding smartphone adoption. However, Jumia besides faces important challenges and risks including, authorities intervention, title by world awesome players, rate volatility, economical downturns successful different African nations, violent activities successful nan region, among others. Taking into relationship each these factors I judge it is amended to beryllium diligent and spot if Jumia's guidance is first capable alteration its existent quarterly rate burn, if guidance is capable to unafraid outer financing successful bid to unafraid nan company's endurance for nan adjacent 3 to 5 years and person a amended image of nan company's results from its maturation acceleration strategy. As specified I see this banal a clasp and will support monitoring it connected a quarterly basis.

This article was written by

Daniel Giron floor plan picture

I americium an knowledgeable financial expert pinch a inheritance successful banking. Throughout my career, I person gained a immense knowledge of in installments consequence and financial analysis. In my erstwhile domiciled astatine 1 of nan largest banks successful Europe, I was responsible for monitoring a portfolio of complete 100 world corporates, which included tasks specified arsenic in installments analysis, financial analysis, soul ratings, etc. I americium a well-educated and passionate finance professional, holding a Master's grade successful economics. Over nan past 4 years, I person written complete 100 in installments rationales for nan bank's consequence section connected world corporates. I americium highly skilled successful analyzing financial information and identifying consequence factors, and I americium committed to staying up-to-date pinch nan latest developments successful nan finance industry. Overall, I americium assured successful my expertise to supply valuable insights and recommendations to assistance pinch finance decisions.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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