Jumia is selling 9m American depositary shares (ADS) in a move to raise more cash. The sale will raise almost $40m. It comes months after the company sold 7m shares to raise $243.2m. Jumia is still losing money and for some investors it is unclear when it might do so.
Jumia’s share price has fallen since its announcement that it would sell shares: the process dilutes the position of existing shareholders, which has caused some to sell up. It has undoubtedly also made others nervous enough to ask the question of whether Jumia will ever be profitable.
Jumia’s losses are narrowing, however. In 2020, Jumia incurred €149.2m in operating losses, a 34.5% decrease from 2019’s figure of €227.9m in losses. In 2018 the company lost €169.7m. For FY2020 Jumia reported €119.5m in adjusted EBITDA losses, down 34.6% from FY19’s -€182.7m.
Investors are impatient. They expect Jumia to have benefitted strongly from the COVID-19 pandemic and its effect on demand for e-commerce in African markets. In 2020. Jumia saw its user base grow by 12% in 2020, up from 6.1m customers in 2019 to 6.8m customers. It is strong growth in isolation until one understands that in 2019 Jumia added 2m new customers.
Gross merchandise volume (GMV) fell 28% year on year to €187.3m ($220m). The decrease was driven by lower sales of consumer electronics as Jumia sought “smaller-sized, more profitable orders” and average order values fell by 24%.
Jumia’s financial performance clearly indicates a substantial shift in underlying strategy. On the one hand, it is focusing hard on positioning itself as a logistics provider and driving growth from its services like JumiaPay. It is also trying to move away from dependence on high value, low frequency sales of items like mobile phones to being more of a mass market retailer.
This was always a key problem for Jumia: there is only a finite amount of revenue to be made from selling smartphones and consumer electronics in low income markets. Instead, Jumia is trying to build relationships with consumer brands and pivot to becoming a mass market retailer. It is a risk – Jumia has little expertise as a mass market retailer and the logistical complexities of delivery in urban and peri-urban areas in places like Lagos, Accra or Nairobi are still a major challenge.
But Jumia has glanced over its shoulder and seen a future in which it has the ability to transform route to market for mass market consumer products by being a platform: handling the payment, stock control and delivery of goods. This pivot moves it away from the costly business of customer acquisition in the hope of selling a smartphone or two and into the business of modernising the supply chain.
As the failures of Nakumatt, Uchumi and Tuskys have shown in Kenya, or the exit of Shoprite from both Nigeria and Kenya, the route to modernisation of the retail sector will be bumpy. Where once the thinking was that retailers would enter and transform the value chain, it increasingly looks like the transformation will happen with the digitalisation of wholesale channels and the synergies to both buyer and seller of integrating buying, credit checks, access to finance, access to a consolidated inventory, stock control and delivery.
Where does this leave Jumia?
The pressure is still on. Unlike for Amazon, which was loss-making for years because Jeff Bezos decided when he would switch focus from growth to profitability, Jumia’s investors have less patience. They will require a radical foreshortening of debts in the next 24 months and signs this pivot to being an enabler of commerce is working.
To that extent COVID-19 has been a gift to Jumia. Still, even allowing for the fact that it has moved away from acquiring customers at any cost, 700,000 new customers in a pandemic year is weak. At a time when lockdowns and curfews have limited consumers’ movements, Jumia has only made moderate headway.
One thing is clear to us: Jumia cannot simply use $400m to plug a gap in its finances and cover off operating losses. Investors will expect a step change if they are going to see their positions diluted 10%. Put bluntly, Jumia has to become a lot more efficient about how it trades, even if it means shedding much of its existing proposition. Especially in a market like Nigeria, which is in dire need of more formalisation of its supply chain, Jumia has an open opportunity to redefine what its customers are and what they need from it.