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 2012.
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 $196 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 $49.77 within its first week of trading in April 2019, 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 $250 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 $17.5 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 2022. It is still reporting major million-dollar quarterly losses but not trending towards reducing losses.
In the fourth quarter of 2019, operating losses expanded by 15% to €61.1 million ($66.5 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 2,000 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 $210 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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