Jumia's 2020 Financial Performance: A Detailed Review

Jumia, a leading e-commerce platform in Africa, recently published its financial reports for the fourth quarter and the complete fiscal year of 2020. The reported outcomes presented a varied picture, showcasing gains in active customers and gross profit alongside declines in order numbers and Gross Merchandise Volume (GMV).

Persistent Financial Challenges

A recurring challenge for the company since its founding in 2012 has been consistent adjusted EBITDA and operating losses. Despite this, the company noted a year-over-year reduction in these metrics.

Jumia expressed confidence, stating that it has made “meaningful progress on our path to profitability” through its recent performance.

Share Price Volatility

The fluctuating nature of Jumia’s business is mirrored in its stock performance over the last year. The company experienced a significant low in March 2020, trading at a record low of $2.15 following allegations of fraudulent activity.

However, a near reversal occurred almost a year later, in February, when the share price reached an all-time high of $69.89.

Key Questions Regarding Jumia's Future

Following the release of these financial results, two primary questions arose for TechCrunch: What factors contributed to Jumia’s value increase of over 3,000% in the past year, and when might the company achieve sustained profitability?

Insights from Jumia's Co-CEO

To gain a deeper understanding of these issues, and to address past challenges faced by the company, a discussion was held with Jumia co-CEO Jeremy Hodara.

His insights provide valuable context to the company’s current position and future outlook.

Discussing Profitability with Jumia

This interview has undergone editing for brevity and clarity.

TechCrunch: Last year, Jumia’s stock traded between $2 and $4. Currently, it’s valued between $40 and $50. What factors do you believe have contributed to this significant increase?

Jeremy Hodara: The rise in stock value, in my assessment, stems from two key developments. Firstly, a widespread recognition emerged globally that e-commerce represents a fundamental shift in the retail landscape and is poised to dominate future commerce. This trend is observable across the entire e-commerce sector over the past 12 to 18 months. Secondly, we at Jumia have consistently emphasized the unique opportunities that e-commerce presents within the African market. E-commerce effectively addresses issues of access to goods and offers substantial value to consumers who may not readily have access to traditional brick-and-mortar retail options in Africa.

A consistent challenge has been demonstrating the viability of a profitable e-commerce operation. However, I anticipate a change in this perception as we have consistently focused on disciplined growth and a clear path towards a profitable business model, quarter after quarter. As stakeholders have gained understanding and observed our progress, their confidence in the potential of this opportunity has grown. In my view, the past 12 months have seen a convergence of increased global awareness regarding the importance of e-commerce, coupled with Jumia providing concrete evidence of its ability to build a sustainable and profitable business.

Do you attribute any impact to Andrew Left’s reversal in October and his subsequent adoption of long positions in Jumia on the share price?

Not substantially. As previously mentioned, I believe the shift in perception regarding e-commerce’s future was already underway, predating October. Our commitment to disciplined execution and building a sound foundation also began months prior. Therefore, I am unable to definitively state whether his decision influenced our share price or if investor sentiment towards our stock is swayed by individual commentary, positive or negative.

You’ve highlighted Jumia’s efforts to achieve profitability. However, the company continues to report quarterly and annual losses. How does Jumia intend to overcome this challenge?

I believe we are progressing in the right direction, evidenced by a 47% reduction in EBITDA losses last quarter, a trend we aim to continue. Our strategy centers on enhancing operational efficiency and identifying new avenues for expansion.

A key advantage of e-commerce lies in the initial investment in assets for internal use, which subsequently become valuable to external stakeholders. We have developed a robust application and website with a highly engaged user base, and we are actively exploring opportunities to monetize this platform through third-party advertising.

Our logistics infrastructure also presents a significant opportunity. We are developing tools and technologies to empower our logistics partners, increasing their productivity and reducing per-delivery costs – a benefit inherent in scaling operations. Therefore, I believe a path to profitability exists by extending the benefits of the assets we’ve built to our broader ecosystem.

Jumia’s expenses decreased last year, but revenue also declined despite a slight increase in the customer base. Are these trends cause for concern?

Regarding revenue, it’s important to understand the dynamics of a marketplace model. Revenue is generated through commissions on transactions. For example, if a seller on Jumia sells an item for $100 and the commission is 10%, Jumia’s revenue will be $10. Conversely, if I purchase a product for $90 and resell it for $100, I record $100 as revenue.

This distinction highlights the difference between the first-party and third-party models. In the first-party model, revenue reflects the product’s value. In a marketplace, only the commission is recorded. Jumia’s business is approximately 10% first-party and 90% marketplace. Shifts in this percentage over time have impacted reported revenue figures.

We do not prioritize revenue as a key indicator of success; rather, we focus on gross profit, which accurately reflects Jumia’s monetization capabilities. Gross profit has been consistently growing, increasing by 12% this quarter. The growth of our active consumer base, rising 12% from 6.1 million in Q4 2019 to 6.8 million in Q4 2020, demonstrates disciplined growth towards profitability.

Given the potential for profitability, why did investors like Rocket Internet and MTN exit the company? Does this create pressure on Jumia?

Their support was invaluable, and they played a significant role in our journey. However, after approximately six to nine years, it’s common for investors to reassess their portfolios. I believe Jumia benefited greatly from their involvement from the outset. While I cannot speak for their motivations, I don’t believe their departure after such a long period should be interpreted as a lack of confidence in our ability to achieve profitability.

JumiaPay has been a positive aspect of your financials. How does it contribute to Jumia’s path towards profitability?

JumiaPay represents a substantial opportunity for us. A successful e-commerce platform naturally lends itself to the development of a robust payments solution for consumers. We are witnessing rapid adoption of JumiaPay, driven by its integration with other digital services, such as mobile phone top-ups, bill payments, and access to loans. It also serves as a convenient payment method for consumers who prefer to prepay for products, which enhances logistics efficiency and drives sales.

The fraud issues in 2019, involving improper sales practices by some J-Force team members, are concerning. What measures is Jumia taking to prevent similar incidents?

We have learned from this experience and have implemented robust compliance procedures and internal controls to address such situations. I believe this is a key factor in our evolution into a more professional organization within Africa.

As an African company, how is Jumia addressing concerns regarding diversity, particularly in leadership positions?

I believe Jumia’s African identity is embodied in who we serve – our African sellers, consumers, and team members. Juliet Anammah, formerly the CEO of Jumia Nigeria, now serves as the chairperson of Jumia Group. The definition of an “African” or “non-African” company is subjective, but our team, our consumers, and our operations are firmly rooted in the African continent. That, in my opinion, is what truly matters to our ecosystem.