Deep Dive: Jumia Technologies
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What they do: Jumia is the leading African e-commerce company. There are essentially 3 big parts to their business. They have the marketplace which is where buyers can get typical goods from 3rd party sellers or Jumia themselves. They have the logistics service which is just enabling the delivery of goods from sellers to buyers, and they have JumiaPay which facilitates transactions on its platform. Previously transactions have been settled at times with cash upon delivery, so the goal is that JumiaPay replaces that.
They operate in 3 different regions of Africa which consist of 11 countries. They have operations in West Africa (Ghana, Ivory Coast, Nigeria, & Senegal), North Africa (Algeria, Egypt, Morocco, Tunisia), and then some in South and East Africa (Kenya, South Africa, & Uganda). Most of their business comes from the West Africa segment.
History: Co-founded in 2012 by Sacha Poignnonec and Jeremy Hodara. The company started with its operations in Nigeria and Pakistan and received backing from a German internet investment group called Rocket Internet. As Ian will touch on both founders were from McKinsey and they specialized in retail, packaging, and e-commerce while at the firm. The two I believe are french.
And the company went public in April of 2019. They are headquartered in Germany with warehouses all over Africa and have more than 4,000 full-time employees now.
Africa is a large continent with over 1 billion people. Is expected to have over 1 billion internet users in the near future
No exact numbers on retail selling opportunity, but going after a huge market that they are partially trying to develop themselves
Retail competitors: Konga, Superbalist, Takealot, Souq
Food delivery: Glovo, Uber Eats
Payments: Paystack, Opay, PalmPay
Still early days though and I would argue it is all about execution for Jumia. There can be a lot of winners in all these industries
Management and Ownership:
Jeremy Hodara and Sacha Poignonnec are co-founders and Co-CEOs
Worked previously at McKinsey
Do not show any ownership of shares, but each owns options worth about 1.2% of the company according to my calculations
Seems like comp may be a bit high
A few related-party transactions
62% public ownership, so low institutional ownership
Andre Iguodala, NBA player, is on the board
Controversy about the french founders exploiting Africa, outsourcing labor
I am going to go with the market cap on Koyfin of $3 billion, but looking at the income statement it looks like shares outstanding are a lot than what Koyfin or Stockrow has
They also raised $340 million in March which will further dilute shareholders (raising the market cap)
Ticker is JMIA
P/S of 17.8
P/GP of 26.7
P/CP over 100 (this is GP – fulfilment expenses)
$140M in revenue for 2020, down 13% YoY (moved out of a bunch of markets)
They report their gross margin at 66%, but they categorize fulfillment as an operating expense. Might have to do that, but still you should pretty much include that as a COGS.
Gross profit did increase by 22%.
Had an income statement rife with adjustments. But total comprehensive loss for the period was $162M.
They report 6.8M annual active customers. 12% more than a year ago. But that seems easy to manipulate.
90% of the items sold on the platform were by 3rd party sellers
Balance sheet and liquidity:
$365mm in cash and equivalents, raised more cash though to a balance of somewhere around $700mm
Burned a bit over $100mm last year
Not any debt except for operating leases.
Good looking balance sheet, but looks to be heavy dilution
Product Experience/Anecdotal Evidence:
(Ryan) Something to be said for Africa being their only market of focus. They’ve also been doing it for a while now and earned the scars from it. Hopefully they are starting to grasp what works and really eliminating what doesn’t.
(Brett) None currently. But, if they can build up the logistics network, that will give them some scale economics like a lot of other e-commerce platforms around the globe. It could take a decade to build this out though.
(Ian) First-mover advantage and access to public markets, they raised >$300mm at the money
Future growth opportunities:
(Ryan) Moving solely into Nigeria. It’s got 200 million+ people and it’s the most tech advanced African country. risk with Boko Haram in Northern Nigeria which they mention as a risk factor, but they should really try to emulate Coupang. Really take market share in one market at a time.
(Brett) Jumia Logistics. They are going the JD.com route and outsourcing the logistics to not only 3rd-party merchants but essentially anyone. At the end of 2020 they only had around 500k square feet of fulfilment space which will probably need to 10x as they go about their ambitious strategy. All the cash they’ve raised will help but they may need to spend billions of dollars over the next decade on logistics to get the necessary ROIC.
(Ian) JumiaPay. Grew 30% YoY, 33% of Jumia transactions now paid through JumiaPay. Starts solving the problem of doing business in Africa, helped by tailwinds of internet access
Highlights and lowlights:
(Ryan) Highlights: African macro tailwinds. Pretty much what the entire annual report was about. Citron makes the case that Sea Limited, Alibaba, and Mercado Libre were a bit early to the market too but it can pay to wait. Lowlights: The lawsuit settlement and the material weakness are obvious red flags. Also, the company being HQ’d and controlled in Europe (all the developers and stuff are in Portugal or Germany), but the operations are in Africa. Seems like there’s room for miscommunication and a disconnect when the operations are so segregated. If you’re going to run a successful e-commerce operation there, you better be armed with capital.
(Brett) Highlights: great mission that could end up being one of the backbone’s of different economies in Africa, driving GDP growth with it. Overall the big highlight for me is the potential for the business if they can execute on Jumia Pay and Logistics, which I believe are the key to a successful company. Lowlights: material weakness, sued by shareholders, known fraud from sellers/agents, cash payments lead to inefficiencies, $28 million in CP is nowhere near enough to reinvest into the business for growth, huge amount of share dilution, lack of focus on core offering, lack of focus on specific economies (going after “Africa” all at once is not ideal, imo).
(Ian) Highlights: Huge market, Don’t love more equity offerings, but at least they got a good price for the offering $341 million at $38.90 per share, don’t hold much inventory. Like that they consolidated into fewer markets Lowlights: Not in love with management team, but don’t hate. Just so much uncertainty, weird issue to deal with, very unprofitable
More or less interested?
We were all less interested in Jumia after this show. Tune in to find out why!
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Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.