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Why Is Jumia Stock Down After Its Q3 Results?

Jumia Technologies reported less than impressive Q3 earnings — is this really a high-growth e-commerce play or will the hype fizzle out?

The Amazon (NASDAQ: AMZN) of Africa. Sounds nice, doesn’t it? Unfortunately, Jumia Technologies (NASDAQ: JMIA) isn’t that. In fact, the Amazon of Africa, is, well, Amazon. Its regional headquarters are centered in Cape Town, South Africa, where Amazon has its fulfillment centers and offers its Amazon Web Services (AWS) cloud services and e-commerce offering. 

But in spite of what Jumia is now, could it be an eventual winner in the African market?

Jumia’s Q3 Results

Orders increased 28% year-over-year (YoY) to 8.5 million, but annual active customers grew just 8% YoY to 7.3 million. Similarly, gross merchandise value (GDV) grew only 8% to $238 million, and with a strategic focus on marketing spending this quarter, the company’s net loss widened to $64 million from $33 million.

What does Jumia do?

Jumia Technologies is an e-commerce business with core operations based in Africa. But in addition to that, Jumia operates Jumia Pay (its payment system). This allows third-party selling on the platform alongside a distributed network of deliverers, logistics networks, and freelance services to help companies to scale their businesses. Its mission is to use technology to “transform everyday life in Africa”, and foster entrepreneurship by giving businesses the tools to succeed. 

So it’s an African start-up? Well, actually no. Jumia was founded in Europe, more specifically, Germany, by co-CEOs Jeremy Hodara and Sacha Poignonnec in 2012. The target market has always been African Nations, however, despite major hubs dispersed in other regions including Dubai, Germany, and Portugal.

What should investors expect from Jumia now?

The Amazon of Africa gives the perception that this company is growing rapidly, and is up there with other e-commerce giants such as Alibaba, Sea Limited, MercadoLibre, and namely, Amazon, but that couldn’t be further from the truth.

I’d love to say this company poses a high risk/high reward opportunity, making it a good wildcard or multi-bagger pick, but the single-digit growth and quarterly results suggest otherwise. 

The region itself poses risks in regard to infrastructure, logistics, and delivery costs — and even events out of Jumia’s control crime for example. Wealth disparity is rampant in some of these countries too, for example, the five richest men in Nigeria are worth a combined $29.9 billion, while 112 million people live in poverty. This is an awful statistic, but it highlights that a huge percentage of consumers simply can’t afford to buy from Jumia, which limits growth and sales.

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