The goal of Jumia Technologies (NYSE: JMIA) is to become the de facto online marketplace and digital payment provider for the entire African continent, which sounds like an amazing opportunity. Indeed, this may be a long-term return to time, which is quite beneficial. But for now, Jumia is still a loss-making machine. It announced its earnings results for the first quarter on May 11. The company’s operating loss for the quarter was 33.7 million euros (41.1 million US dollars). This is a significant improvement compared to the 43.7 million euro operating loss in the first quarter of 2020, but it is still considerable. However, even with sustained losses like this, there are some reasons for Jumia’s excitement.
First, pattern recognition is a key feature of successful investors. Over the years, some of the biggest investments have been companies that intend to do what Jumia is trying to do. In North America, we own Amazon, which has grown by 160,000% since the initial public offering. In South America, there is MercadoLibre, which has risen nearly 5,000% since it went public. Even though Jumia can only achieve a fraction of the success of these companies, given that its market value is still less than $3 billion, it has amazing upside potential.
Perhaps the most compelling reason for Jumia to enter the market is one of the biggest global trends that hardly anyone is talking about. In the next 30 years, the population of Africa is expected to double, which is the fastest growth anywhere on earth. If current trends continue, Nigeria (one of Jumia’s core markets) will have more population than the United States by 2050. In short, Jumia is committed to bringing e-commerce and digital payments to the region that may be the fastest growing and worst-served in the world. This alone makes it an interesting opportunity. In addition, the way Jumia pursues this goal may be very scalable. The company has recently no longer prioritized first-party sales. Instead, it focuses on developing infrastructure and logistics to make e-commerce possible. As more and more consumers and businesses in Africa embrace the digital commerce trend, Jumia may be one of the only companies ready to promote this transformation.
Jumia is committed to inventory management and transportation logistics. The construction of this kind of infrastructure is expensive but essential. Therefore, we can temporarily provide the company with an opportunity to partially make up for its continuing operating losses. What is more important now is the growth of sales, customers and payment volume. These three things are the indicators adopted by the Jumia platform. Jumia is growing in all three areas, but the growth rate is not large. By 2020, its active customer base will grow by 12% year-on-year, while total merchandise sales (GMV) will drop by 19%. However, the decline in GMV was due to a 46% drop in first-party sales, which was intentional. In the first quarter, due to a 35% decline in first-party sales, GMV dropped by 13% compared to the same period in 2020. But the number of active customers in the first quarter increased by 7%. From these two reports, we can say that third-party sales and new customers are growing, but at a moderate pace.
On the surface, JumiaPay’s payment volume growth looks much better. The total payment volume (TPV) in 2020 has increased by 58% compared to 2019. In the first quarter, TPV increased by 35%. However, this is a very small starting point, that is, strong growth. In the first quarter, TPV was only 43 million euros. In contrast, MercadoLibre Mercado Pago’s TPV in the first quarter was $14.7 billion, an increase of 82% year-on-year-growth from a higher starting point is much better
All in all, Jumia is in a good position in global population growth. But the adoption has not yet reached the turning point. Therefore, today’s investors need to show great patience when buying Jumia stock. If it pays off, it will take time.