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Finance

Will Jumia Technologies Continue to Rally Into 2021?

Jumia Technologies AG (JMIA) is a German-based e-commerce platform which operates exclusively in Africa. Its platform consists of a marketplace, which connects sellers with consumers, a logistics service, which enables the shipment and delivery of packages, and payment services, which facilitates transactions among participants. The company has also recently launched a gaming division. JMIA is active across 11 countries in Africa, accounting for more than 70% of Africa’s GDP and 70% of Africa’s internet users.

JMIA is one of the best performing stocks in 2020, with decreasing operating losses. JMIA’s marketplace revenue increased 38.2% year-over-year in the second quarter that ended June 2020. The company saw an all-time high for its JumiaPay fintech payments volume, which surged 106%. JMIA also made significant progress on its path to profitability during the quarter, with operating loss decreasing 44% year-over-year, primarily by implementing a number of cost efficiency initiatives.

With robust tech and e-commerce growth in emerging markets amid the pandemic, the stock gained 127.6% year-to-date. However, because of internet infrastructure headwinds in Africa and a number of other factors, JMIA has a “Neutral” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates JMIA:

Trade Grade: B

JMIA is currently trading higher than its 50-day and 200-day moving averages of $10.12 and $6.88, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 47.9% return over the past three months reflects a solid short-term bullishness.

JMIA registered 6.8 million active consumers in the second quarter, up 40% year-over-year. The company witnessed 2.4 million JumiaPay transactions during the quarter, up 36.3% year-over-year on-platform penetration. However, gross merchandise value fell 13.2% from the prior-year quarter, despite orders rising 8% year-over-year.

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Buy & Hold Grade: D

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, JMIA is not positioned well. The stock is currently trading 35.9% below its 52-week high of $23.90.

In May 2019, activist investor Andrew Left of Citron Research called out an “obvious fraud” at the company and said shares were “worthless.” This came shortly after the company went public in April 2019. As a result, the stock performed poorly following the IPO, declining 68% from $14.50 to $4.60. Moreover, several putative class action lawsuits were filed against the company on alleged misstatements and omissions in connection with, and following, the IPO. JMIA will make a settlement payment of $5 million. However, Left has recently changed his tone and is now going long on the shares of JMIA.

Additionally, the company is struggling as a public company, with stagnant growth and rising costs causing it to burn through a lot of cash. Consequently, the management decided to exit some markets in Africa last year and focus on the geographies in which it was making the most progress.

Overall POWR Rating: C (Neutral)

Despite the booming African e-commerce, JMIA is rated “Neutral” due to unfavorable African macros, weak company fundamentals, and stagnant growth, as determined by our overall POWR Ratings.

Bottom Line

Continued business losses and underwhelming quarterly results, despite a COVID-19 tailwind, is concerning. Africa was not ready to jump into a digital era back in 2019. But the pandemic kick-started Africa’s digital revolution. African consumers and businesses have pivoted to the adoption of digital products and services. However, traditional e-commerce giants like Amazon.com (AMZN) and Alibaba (BABA) sell selectively across the continent. Hence, JMIA could lose significant market share once the giants enter African markets.

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Moreover, internet penetration rates are far below 50%, causing e-commerce to not take off in Africa. Consequently, the success of JMIA depends largely on how Africa rapidly digitizes over the next several years, and leapfrogs into the modern era of ubiquitous high-speed internet connectivity using 5G. JMIA stock is presently a high-risk, high-reward play.

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JMIA shares were trading at $15.58 per share on Tuesday afternoon, up $0.26 (+1.70%). Year-to-date, JMIA has gained 131.50%, versus a 9.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…

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