Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
Have you heard of Jumia Technologies, a publicly traded company on the New York Stock Exchange that aspires to be the Amazon of Africa? It appears that a multitude of investors have already driven the price to high altitudes, only for short sellers to attack it and bring its price tumbling back to reality. JMIA, its call sign, was founded in 2012 and is now headquartered in Berlin, Germany. It did not go public until late in 2019. Its opening price of $14.50 quickly trebled, only to fall precipitously to $2 over time, a fate that often befalls many overhyped new offerings. JMIA’s current rollercoaster ride is depicted below in a daily price chart, courtesy of eToro.
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Jumia has already developed and is operating an e-commerce platform, logistics and inventory infrastructure, and proprietary payment system to support online retail sales in Africa. Revenues for the 12 trailing months hit $163m, and Gross Profit Margins are healthy at 75%, but the company has yet to record a profit, much in the same fashion as its predecessors, Amazon and Alibaba, or its South American mirror image, MercadoLibre. For the past year, however, management has been trimming loss leaders and refining its business model for the future. Market capitalization, which many analysts claim is overstated, stands at $2.2bn.
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JMIA currently trades at $22 per share, having retraced roughly 70% from its All-Time High (ATH) of just under $66. An earnings announcement is slated for mid-August. Analysts will focus on revenue growth and management’s success or failure in its cost-cutting and business restructuring programs. The stock price has recently been trapped between tight boundaries since its last earnings report in May, but favorable results could lead to a breakout from its ranging tedium.
Jumia Technologies operates an online retail marketplace for the benefit of sellers and buyers, primarily targeted at consumers in the African continent. It was founded in 2012 in Kenya by Jeremy Hodara and Sacha Poignonnec, both formerly consultants with McKinsey, along with fellow associates Tunde Kehinde and Raphael Kofi Afaedor. After initial confirmation of its business model, it quickly expanded to Egypt, Morocco, Ivory Coast, Nigeria and South Africa. By 2018, Jumia had firm footprints in 14 African countries.
Today, there are more than 110,000 active sellers on the Jumia e-commerce platform, which also provides delivery support and various payment and financing programs for the benefit of its consumer base. By 2015, revenues had soared to $234m, more than doubling its success from the previous year. Valuations of the enterprise soon exceeded $1bn, making Jumia Technologies the first ‘unicorn’ in Africa.
Part of this success story was due to its extensive range of product categories, which included fashion and apparel, beauty and personal care, healthcare products, home and living, cleaning supplies, fast-moving consumer goods, smartphones, and other consumer electronics. The firm is also in the service arena, offering restaurant food delivery, hotel and flight booking, classified advertising, airtime recharge, and instant delivery.
Following its early successes, the company began to focus on going public. In January 2019, the firm changed its name from Africa Internet Holding GmbH to Jumia Technologies AG. Two months later, Mastercard became a high-profile investor, adding €50m to the firm’s equity pool. One month after this capital infusion, Jumia went public on the New York Stock Exchange, raising $196m in new capital for its efforts. It opened at $14.50, but analysts talked up the price to between $27 and $40 in subsequent reports.
Jumia’s share price soon peaked close to $50 before a pullback occurred. Unfortunately, a group of short sellers published a report accusing the firm of fraud in its offering documents. The price fell precipitously, until Citigroup, a key investor, published its own report refuting each of the charges. Nevertheless, the damage had been done in 2019, and the stigma stayed until a year ago. In July 2020, Jumia shares began to recover lost ground. After one false start, the share price soon skyrocketed from $12 to establish a new ATH of nearly $66. It has since retreated.
Critics claim that the stock is overvalued and that the firm expanded too quickly into too many markets with too many product offerings. Management’s response was to close operations in Tanzania, Cameroon and Rwanda but still maintain online commerce through selected portals. It also outsourced its travel and hotel booking service to Travelstart, while also trimming its dependence on high-cost electronic products, which tend to be one-off sales and not repeating business.
Restructuring programs are never quick or easy. According to one analyst: “Jumia is a company in transition. It has shifted its business model towards third-party marketplace sales, which has heavily impacted its near-term growth. Moreover, it aims to be less reliant on one-off sales such as in electronics towards higher-frequency product categories such as clothing, food, and others.”
While the market waits for measurable results, there are a number of positives that will be tailwinds for this company. Africa has the fastest-growing population on the globe – a plus for the long term. Jumia’s websites also rank highly in internet traffic ranking reports, and the firm has received several prestigious awards. In 2016, Jumia ranked 82nd in the Top WIRED 100 list. In 2017, Jumia ranked 47th among Massachusetts Institute of Technology’s Smartest Companies. And in 2019, it received the eCommerce Company of the Year Award in Nigeria. To put the latter in perspective, by 2050, Nigeria’s population will exceed that of the US.
Jumia Technologies’ stock forecast for the near term will depend on how well its earnings call goes in mid-August. The chart below, courtesy of eToro, illustrates the ranging behavior that has gripped this stock since its last earnings report in May.
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As depicted in the chart, price behavior has fluctuated between $20 and $32. Jumia Technologies has never recorded a profit. It continues to invest in building its internal infrastructure, which will not continue forever. As long as there is healthy growth and good gross profit margins, investors will recognize that the business model will eventually pay off down the line. Margins are exceptional at 75%, but growth has lagged as the company restructures its product offerings and trims the number of countries that it supports.
Due to these concerns, the market will not view any hiccups in growth or gross margins favorably. The ranging behavior of current price points is an indication of a wait-and-see attitude. Is there a play to be made in Jumia Technologies near-term stock forecasts? At this stage, it would be purely speculation to take a position either way. It would be wise to wait until after August.
Jumia Technologies stock predictions for 12 months out also involve a degree of speculation. There are five analysts following this stock who are confident enough in their perceptions of the inner workings of Jumia to offer up predictions for July 2022. Each one trusts that management will make good on their commitments, since none of the forecasts are below today’s market value of roughly $22. One additional firm outside of this group, Morgan Stanley, reduced its one-year forecast from $32 down to $21.
The median of this group is $25, but the optimists believe that a significant rise in share price is a real possibility, falling somewhere in the $53 to $74 range, as presented in the chart below. At its last earnings disclosure meeting in May, Jumia’s chief executive Sacha Poignonnec stated that the firm’s reorganization plan was on track. He cited the 24% reduction in the company’s losses as evidence that profitability was approaching according to plan and noted: “All the work that we have done is paying off and we are in a very good position to accelerate the growth.” Investors want to see more of the same. CNN has poled eight investment analysts and the consensus of the group is to ‘hold’. It is not time to close positions or to add to them.
What are the Jumia Technologies stock forecasts for 2025? Jumia has yet to turn a profit. Forecasts five years out require a leap of faith that this enterprise will not be gobbled up by its larger competitors seeking inroads in Africa. Since there are no earnings to speak of at this stage of its development, future scenarios will depend upon assumed growth rates, the power of its business model, and whether management has focused upon a long-term formula for success.
While the majority of analysts consider JMIA a ‘Hold’ at the moment, there are several reasons why investors can get excited about its long-term prospects. One clear distinction is that this firm’s vision is not something new. It has been attempted and succeeded most dramatically in other major marketplaces. If you had bought Amazon at its opening IPO bid, you would have had an astounding return of 160,000%. Even with MercatoreLibre, its South American cousin, the return has already reached 5,000%. From this perspective, JMIA definitely has upside potential.
Jumia is also positioned to take advantage of the burgeoning population growth in Africa, said to be the highest across the globe, and the readiness of its citizenry to embrace e-commerce and all that it has to offer. With its restructuring efforts soon completed, it will be a one-stop shop for continuing online purchases, not just occasional one-off buys.
The build-out of the firm’s inventory management and shipping logistics has been costly but a necessary investment for the future. Also, its payment systems have yet to be monetized, which could add another revenue stream to its mix. The hurdles, however, are growth-related. The present culling process of first-party sales was intentional, but gross merchandise sales volume (GMV) declined in 2020 by 19%. This statistic for Q1 2021 was 13%. The direction is correct, but at some point, GMV growth must accelerate along with an accelerating customer base in tandem.
Jumia is a company that is transitioning for the future. It is assembling the building blocks in a better fashion after years of experience in the pan-African market. Its addressable market is considerable. The firm is presently operating in 11 countries where 600 million people could be potential buyers of its products and services. This sub-group also represents 70% of Africa’s internet users, and if you believe a recent McKinsey report, then 10% of retail sales in 2025 will be online in Africa, appraised at a potential of $75bn in related revenues. If Jumia can manage to execute even moderately on its business model, the potential is considerable.
Given this backdrop and basic fundamentals, what is a conservative estimate for Jumia shares in 2025? If all goes according to plan, which means that accelerated growth will occur and profitability will soon become a reality, the analysts willing to estimate five years out coalesce about a value of $170. Investors will have to be patient over the long haul; Jumia must perform; and the digital opportunity in Africa must become a reality for JMIA shares to reach this value.
As one analyst described the Jumia Technologies buy or sell demographics: “The opportunity is real, but it's not being adopted as much as you might think.” In other words, the key variable is convincing African consumers to take part in the Jumia revolution. Similar e-commerce revolutions have taken place in the US, in China, and in South America. Why not in Africa? The jury is still out on whether African online buying will meet expectations.
The lofty valuation of Jumia shares, however, is already presuming that these future developments are more than a general possibility. Critics claim that the current fundamentals and JMIA financial statements do not justify its $2.2bn market capitalization. Prudent investors will wait this one out until Jumia management demonstrates that it can move beyond prior infrastructure issues, attract African consumers to its platform in large numbers, and grow the business profitably. If the party does start early, there will always be an opportunity to join in when more certainty is present.
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