Jumia, Africa’s largest online e-commerce platform has seen its share price decline by a whopping 48% in the last 6 months. For investors who bought the stock about a month ago, the stock is down 26%.
Before the recent slide, Jumia has been one of the best-performing stocks and is still up by 142.44% Year on Year (YoY), a significant return for those who bought this time last year.
Why the drop?
The first clue could be reactions from investors to the company’s recent results performance from its financial statement. In its first-quarter results, Jumia recorded a decline in revenue by 6.4% when compared to the first quarter of 2020 from €29.3 million to €27.4 million. This result is also lower than the revenues generated in the immediate past 4 quarters.
On its performance, the company stated that the decline in revenue was in line with its strategy to undertake fewer sales on a first-party basis so the company can focus on running an asset-light marketplace model where third-party sellers offer consumers an expanding range of products and services.
The economic downturn ravaging sub-Saharan African countries due to Covid-19 is also casting a gloomy outlook for the stock, making it less attractive for investors. With inflation high and purchasing power eroding, investors are worried that Jumia’s ability to grow revenues is constantly being threatened.
For example, Nigeria’s naira has lost its purchasing power as the exchange rate for the dollar is as high as ₦505 as of the time of writing this report. The company noted that its GMV (Gross Merchandise Value) declined by 13% YoY because of FX headwinds as a result of local currency depreciation against the Euro over the past year, with the Nigerian Naira, Egyptian Pound and Kenyan Shilling declining by 15%, 9% and 19% respectively against the Euro in the first quarter of 2021, year-over-year.
Jumia also mentioned in its earnings that Covid-19 induced lockdowns did not lead to meaningful “changes in consumer behaviour but instead created supply and logistics disruption” particularly in their food delivery business where dinner deliveries were affected by curfews in these countries.
To add, because of the Delta variant of the virus, more restrictions in other countries like Nigeria may be on the way.
Another reason for the decline is investors are taking profit on Jumia. Faizan Farooque, a former analyst with S&P Global Market Intelligence, stated in an article that he “believes that investors have already priced in Jumia’s future profits.” He further went on to say, “The company operates in a volatile, unstable market. The next global growth engine, Africa has a great deal of potential. However, it still has major infrastructure issues that need to be addressed.”
Comparison with Amazon and eBay
Other E-commerce businesses like Amazon has managed to improve its performance despite the effects of the pandemic. Its share price is up 10.44% Year-to-Date (YtD), currently trading at $3,519.28 as of the time of writing this report. Its financial statement also looks good as its net profit appreciated 12.25% compared to Q4, 2020.
eBay’s share price is also doing great as it is up 32.46% YtD, currently trading at $68.22 on the NASDAQ exchange, as of the time of writing this report. Its gains are a result of improved Q1 performance with its net income up by 45% compared to Q1, 2020.
Although one could say the performance of Jumia is poor compared to these other companies but it clearly shows that the African market is a tough market to crack due to inadequate infrastructure leading to technological deficiency. This poses a problem for Jumia as their entire business model depends heavily on technology.
Latest on Jumia
As stated earlier, Jumia announced in March that it would be selling 9 million American depositary shares (ADS). So far in the last 6 months, the company has managed to raise $570 million to boost its operating activities on the continent. It has also expanded its network of pick-up stations for increased convenience and has over 1,600 pick-up stations across Africa with 23% of packages delivered in pick-up stations in the first quarter of 2021.
Jumia is currently trading at $22.30, down 0.84% for the day as of the time of writing this report.