Jumia Reduces Losses: Growth in Payment Service Drives Financial Results

Jumia's Path to Profitability: A Q4 2020 Analysis

Following a period of financial difficulties, Jumia, a leading e-commerce platform in Africa, has announced substantial strides toward achieving profitability in the fourth quarter of 2020.

This assertion is supported by the company’s reporting of record-high gross profit figures and notable enhancements to its operational cost structure.

Operational Challenges and Transformations in 2020

According to Jumia’s official earnings report, 2020 presented considerable operational hurdles, primarily due to disruptions in supply chains and logistics caused by the COVID-19 pandemic.

Despite these challenges, the year also proved to be a pivotal turning point, fundamentally reshaping the company’s business model.

Financial Performance During the Pandemic

A detailed review of Jumia’s financial results is necessary to assess its performance throughout the pandemic year.

This analysis will determine whether the observed data aligns with the company’s optimistic projections regarding its trajectory toward profitability, as outlined in its official statements.

Key Financial Highlights

• Record Gross Profit: Jumia achieved its highest-ever gross profit in Q4 2020.
• Cost Structure Improvements: The company implemented measures that led to positive changes in its cost management.
• Business Model Evolution: The pandemic accelerated the adaptation and refinement of Jumia’s core business strategy.

Further investigation into these areas will provide a comprehensive understanding of Jumia’s financial health and future prospects.

Jumia's 2020 Performance Overview

Key performance indicators for Jumia during 2020 presented a mixed picture. The platform experienced a 12% expansion of its user base, increasing from 6.1 million customers in 2019 to 6.8 million in 2020.

However, the rate of customer acquisition slowed; only 700,000 new customers were added in 2020, compared to 2 million the previous year.

Gross Merchandise Value and Order Volume

Gross Merchandise Value (GMV), representing the total value of goods sold, increased by 23% sequentially to €231.1 million. This growth was largely attributed to Black Friday sales during the quarter.

Despite this quarterly increase, year-over-year GMV declined by 21%. Jumia attributes this decrease to the ongoing effects of business mix adjustments initiated in late 2019.

The number of orders placed on the platform decreased by 3% year-over-year, falling from 8.3 million in Q4 2019 to 8.1 million in Q4 2020.

Gross Profit Improvement

Jumia demonstrated positive momentum in gross profit after fulfillment expenses. A gross profit of €1.0 million was recorded in Q4, a result previously noted as a positive step towards profitability.

Building on this, the company achieved a record gross profit after fulfillment expense of €8.4 million in the final quarter of 2020. This represents a significant improvement over the €1.5 million reported for the full year 2019, which grew to €23.5 million in 2020.

Revenue and Key Takeaways

Notably, Jumia achieved these improvements in profitability despite a 12.9% decrease in revenues, which fell from €160.4 million in 2019 to €139.6 million in 2020.

These results indicate a shift in Jumia’s business model, with a focus on improving profitability even amidst revenue fluctuations.

JumiaPay and Positive Trends in Financial Performance

Several key performance indicators suggest a positive trajectory for Jumia's financial health.

The company’s gross profit for 2020 amounted to €27.9 million, demonstrating a 12% increase when compared to the previous year. Notably, expenditure on Sales and Advertising was reduced by 34% year-over-year, totaling €10.2 million.

Furthermore, General and Administrative expenses, excluding share-based compensation, reached €21.8 million for the year, which signifies a substantial 36% decrease compared to 2019.

Jumia experienced significant losses in 2019, reporting €227.9 million, a 34% rise from the €169.7 million recorded in 2018. However, a marked improvement occurred in the following year.

The company announced operating losses of €149.2 million in 2020, representing a 34.5% reduction from the €227.9 million reported in 2019.

Shifting the focus to adjusted EBITDA figures, Jumia also exhibited positive changes in its financial performance during Q4 2020.

An adjusted EBITDA loss of -€28.3 million was recorded in the final quarter of 2020, a decrease of 47% compared to the €53.4 million loss reported in Q4 2019. For the entirety of 2020, adjusted EBITDA losses totaled €119.5 million, a 34.6% improvement over the -€182.7 million reported for FY19.

The adjusted EBITDA losses experienced by Jumia in 2020 were the lowest across all full-year periods for which data is available. Despite this progress, the company continues to operate at a loss and is projected to remain unprofitable in the near future.

Fintech at Jumia

Jumia’s financial technology platform, JumiaPay, has demonstrably contributed to the company’s positive performance trends.

During the first quarter of 2020, JumiaPay facilitated 2.3 million transactions, totaling €35.5 million in processed value. This volume subsequently increased to €53.6 million, stemming from 2.4 million transactions during the second quarter of 2020.

The third quarter of the same year saw 2.3 million transactions recorded, with a payment volume reaching €48.0 million. Further growth was observed in Q4, where JumiaPay processed 2.7 million transactions valued at €59.3 million.

Across the entirety of 2020, JumiaPay handled a total of 9.6 million transactions, resulting in a total payment volume (TPV) of €196.4 million. A 30% increase in TPV was noted in Q4 2020 when compared to the corresponding period in 2019.

Furthermore, the overall TPV for 2020 experienced a substantial rise of 58% compared to the figures from 2019.

JumiaPay represents a vital component of Jumia’s operational framework. In Q4 2020, 33.1% of all orders were settled using the service, a rise from the 29.5% recorded in Q4 2019.

Jumia's Stock Performance and Growing Confidence in Profitability

Jumia launched its initial public offering (IPO) in April 2019. Beginning its journey as Africa's first tech company listed on the NYSE at a price of $14.50 per share, the company’s stock has experienced significant volatility.

The stock price peaked at $49 per share before facing challenges related to doubts surrounding its business strategy, accusations of fraudulent activity, and negative assessments from Andrew Left, a prominent short-seller and the founder of Citron Research.

Subsequently, the share price declined sharply to $26, eventually reaching a record low of $2.15 on March 18, 2020.

Mr. Left later revised his stance, acknowledging Jumia’s progress in addressing fraud concerns. He established long positions in the company and predicted a future share price of $100.

This shift in investor perception, alongside Jumia’s adjustments to its business model and the discontinuation of operations in Cameroon, Rwanda, and Tanzania, facilitated a recovery in the share price.

It ultimately reached a new peak of $69.89 on February 10th.

Prior to today’s earnings announcement, Jumia was valued at $48.81 per share. Following the release of recent financial data, the company’s share price has increased by approximately 10%, exceeding $54 per share at the time of this writing.

This surge demonstrates investor optimism, even considering the company’s ongoing operational and adjusted EBITDA losses.