Liquidity crunch looms for “Africa’s Amazon”

The first pan-African e-commerce platform, Jumia which is present in 14 countries, including Nigeria, Kenya, Ghana, Algeria, Angola and Senegal have not failed to be in the news since its listing on the New York Stock Exchange (NYSE) on April 12, 2019. Jumia’s shares have been on the watch list for a lot of analysts who have different opinions about the company. 

It would be recalled that before listing on NYSE, Jumia declared that the company recorded €120.1 million ($135.83 million) loss in 2017, €91.9 million ($103.92 million) loss in 2016 and €161.3 million ($182.30 million) loss in 2015. Jumia cited the continued losses as a lack of guarantee that it will “achieve or sustain profitability” or “pay any cash dividends” in the foreseeable future as part of its “Risk Factors” for potential investors. Since launching its services in 2012, Jumia racked up losses of almost $1 billion and was cashflow negative to the tune of $159.2 million, for the 12 months to Dec 31, 2018. 

The share of the company, which started trading at the NYSE on a positive note seems to be having issues now following the recent announcement of a class-action lawsuit by Bragar Eagel & Squire, against AAC Holdings, Jumia Technologies, Intersect ENT, and Momo. As at yesterday, the company’s stock decreased by 5.99 percent or $1.28 during the last trading session, reaching $20.1 and about 455,813 shares were traded. Equities analysts forecast that Jumia will report earnings per share of ($0.66) for the current fiscal quarter.

However, Nirgunan Tiruchelvam, Head of Consumers Equity at Tellimer, spoke with TheNerve Africa on what to expect from Jumia Technologies. According to him, Jumia’s business model has severe vulnerabilities as the business is intensely cashflow negative. At the current burn rate, Jumia’s cash levels will be low in 2021 and 2022 Full Year, and it may also need another capital raise, even if operating margins and inventory management improve. 

Source: Company filings, Tellimer research

He is also of the opinion that Jumia has been miscast as Africa’s Amazon so he said that “Amazon became cashflow-positive in 2002 and profitable in 2003, but those factors are absent for Jumia. Jumia will find it more difficult to access the deep capital markets that drove Amazon’s (and other Western e-commerce) growth. Jumia’s cashflow is weak and it is unlikely to be able to access the same level of bond financing.”

“There have been allegations of fictitious sales and weak accounting standards from short-sellers, although we cannot independently confirm any of these. Jumia is trading at an unjustifiable premium to its e-commerce comparables. On a price/sales basis, it trades at a 60percent premium. Our view is that Jumia’s market opportunity in Africa does not justify these premiums. We initiate our coverage of Jumia with a Sell recommendation and a target price of US$16.2,” Tiruchelvam said further.