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Jumia remodels business as losses lead to share price tumble on NYSE

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Jumia Remodels Business As Losses Lead To Share Price Tumble On Nyse
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Jumia remodels business as losses lead to share price tumble on NYSE by Demo(m): Sun Mar 2020 09:46am
E-commerce firm Jumia plans to reorganise its business after operational losses dampened the excitement that surrounded its listing on the New York Stock Exchange a year ago.

On Tuesday, the firm released fourth quarter and full year 2019 results reporting a 34 per cent increase in operating losses to $248 million from $184.2 million posted in 2018.

The company attributed the loss to an increase in general and administrative expenses, which included share-based compensation and an increase in the fulfilment expense.

Gross profit rose by 79 per cent to $82.4 million during the year, up from $47.9 million in 2018, attributed to platform monetisation, enhanced promotional discipline and reduced emphasis on consumer incentives.

The firm, which last year exited the Rwandan, Tanzanian and Cameroon markets, posted a 33 per cent increase in gross merchandise value (GMV) — the total amount of goods sold over the period — to $1.1 billion from $899.3 million in 2018. The three countries collectively accounted for less than 10 per cent of its GMV, gross profit and operating loss for the full year 2019.

In Kenya, its biggest market in East Africa, the firm sent six per cent of its local staff home last December.

The firm recorded a GMV growth of 20 to 50 per cent in most product categories, but the phones and consumer electronics segment contracted by approximately 20 per cent on a year-over-year basis.

The phone segment has traditionally been a big driver of Jumia’s sales.

As part of plans to reorient the business, the firm plans to focus on fast-moving consumer goods, fashion, beauty and personal care as well as digital services.

“These provide affordable entry points into the Jumia ecosystem while driving repeat purchase and consumer lifetime value,” said Jumia co-chief executive Sacha Poignonnec.

According to the results, full year orders increased by 85 per cent to 26.5 million in 2019, from 14.4 million in 2018, attributed to improving repurchase rates.

The rates of cancellations, failed deliveries and returns as a percentage of its GMV marginally decreased from 35 per cent in 2018 to 32 per cent in 2019.

Prior to listing on the NYSE, research firm Citron Research accused Jumia of “fudging numbers” to paint a picture of a stable business in order to raise funds from investors.

INITIAL OFFER

At the NYSE, where Jumia listed in April last year through an initial public offer, its share price dropped by 27 per cent to an all-time low of $3.99, resulting in a market capitalisation of $313 million.

The debut share price was $14.50, then it peaked by over 70 per cent to hit $46.99 in May 2019, and fell to the current price amid fears that the coronavirus outbreak could threaten its revival plans.

Jumia anticipates the coronavirus outbreak will affect its cross-border business and create procurement problems for sellers.

The e-commerce firm has an operations centre in China, the epicentre of the virus.

“We initiated a rebalancing of our business mix towards higher consumer lifetime value business, reducing promotional intensity on certain product categories, while driving growth of the more affordable, higher purchase frequency ones,” said Mr Poignonnec.

“We also undertook a portfolio optimisation initiative to enhance our business focus and align our investments and resources with the opportunities that we believe best support our long-term growth and path to profitability. We expect the impact of these initiatives to continue playing out in the coming quarters, with a more meaningful contribution to our path to profitability in 2020 and beyond,” he added.

CHALLENGES

Across all its markets, Jumia’s challenges include vendors selling counterfeit products, consumer cyber fraud and robberies.

Despite the losses, Jumia posted a 54 per cent increase in active customers to 6.1 million from four million. Net consumers were 2.1 million compared with 1.3 million in 2018, a 71 per cent increase. This was driven by consumer adoption and record traffic on its platforms that surpassed one billion visits in 2019, as well as improved conversion rates.

Riding on a tagline of “100 per cent Africa” and often seen as the “Amazon of Africa”, Jumia has operations in 11 countries. Its biggest markets are Nigeria, Kenya, Morocco and Egypt.

Jumia says the e-commerce market in Africa is still nascent and well positioned to grow, considering that in 2018 less than one per cent of retail sales were conducted online compared with nearly 24 per cent in China.

The firm contends that its pan-African footprint and geographical diversification are key assets as it continues to invest across the 11 countries that collectively represent more than 600 million people and approximately 70 per cent of Africa’s internet users and gross domestic product.

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