When Jumia’s successes compel naysayers to change their positions

In May 2019, Citron Research, one of the longest-running online stock commentary websites with a track record of identifying fraud and terminal business models, published a damning report on Jumia Technologies, a Berlin-based e-commerce company operating in Africa. In the much-discredited report, Andrew Left, the founder of the research company
and a professional short seller, levelled a number of allegations against Africa's leading e-commerce platform, which included financial discrepancies, fraudulent orders and company inefficiencies.

Also, a few weeks to the release of Jumia’s Q1 reports in August, 2020 Left published another report questioning the information presented in Jumia’s prospectus published on the New York Stock Exchange (NYSE) and asking the SEC to delist Jumia’s stock. These
negative reports dealt a heavy blow on the once promising prospects of the company – Jumia’s stock price, which rose from $14.50 per share to $50 weeks after placement, crashed by more than half to $21; investors became agitated and threatened class action lawsuits against Jumia; employees became agitated as they didn’t know what to believe; and brand partners and sellers on Jumia began to withdraw their merchandise from the platform.

The company’s stock performance continued this downward slope throughout the financial year, trading for as low as $2.15 per share at the end of trading on 18 March, 2020. This situation seemed to justify Andrew Left and his Citron Research co-travellers as well as other naysayers to the Jumia’s business prospects. What these naysayers to the Jumia operations have in common is a less than full appreciation of the Jumia’s market. Their
analyses of the company came heavily from the information they derived from the European and American markets.

One thing to be noted here is that, while these off-shore analysts saw doom, owing to their inapplicable data, Jumia’s management, led by Jeremy Hodara and Sacha Poignonnec, armed with superior data from Africa market – huge population, youthful composition,
growing internet penetration etc – saw good prospects for Jumia’s business. Despite the negative reports and the challenges they posed for the company, the managers of the Jumia were undaunted and focused on their business model tenaciously. When it seemed that the worst is yet to come, their tenacity and business acumen started yielding fruits. The downward slide of the stock price, not only stopped, but went into reverse gear, rising up to $18.03 per share at the end of trading on 26 October, 2020, up 17 percent in the last fivedays and more than 165 percent year-to-date.

The new business reality of the company came to the naysayers, who all awaited a tragic news concerning the company, as a huge shock. Apart from the rebounding stock price, the company is recording positives in almost all performance indices in the year 2020. In the Quarter 3 financial results released on 10 November, 2020, Jumia’s gross profit was €23.2 million ($27.3 million), a year-over-year increase of 22 percent. Jumia’s gross profit after fulfilment expense reached €6.6 million, compared to a loss of €1.7 million in the third quarter of 2019, marking the first time that the Jumia Group scored a positive in its gross
profit after fulfilment and advertising expenses.

The number of annual active consumers on its platform was 6.7 million, up 23 percent year- over-year. However, orders fell to 6.6 million, down 5 percent year-over-year on the back of a 20 percent decrease in digital services transactions on the JumiaPay app, while orders on
the rest of the platform were stable. Jumia’s payment platform, JumiaPay continued its stellar growth recording a total payment value €48 million, a year-over-year increase of 50 percent.

Explaining the Q3 2020 performance, the management of Jumia said, “We are making significant progress on our path to profitability with Adjusted EBITDA loss in the thirdquarter of 2020 decreasing by 50 percent year-over-year. The significant progress achieved was mostly attributable to the thorough work we have done on the fundamentals of our business, with limited support from external factors such as COVID-19.”
These current realities compelled Citron Research to go from bearish to bullish on Jumia Technologies, citing Jumia’s change in its business which saw a higher adoption of the e- commerce service delivery due to the pandemic. This adoption, according to Citron Research, is helping Jumia Technologies head for profitability in Africa’s emerging market.

According to its report, Citron Research says that Jumia Technologies is the only scaled e-commerce player in Africa, shipping about 20 million packages a year to cities and rural areas across eleven countries in the continent. “Jumia’s positioning in Africa alone (e.g.,
logistics, technology, employees, brand) should be worth minimum $7 billion or $100 per share.”

Citing Africa’s population of 1.3 billion people, with over 520 million internet users, Citron said, “either these young Nigerians, who make up to 60 percent of the entire population, will be the first people on earth to not accept e-commerce or the stock is going to $100." The report buttressed this position quoting Patrick Collison, CEO of Stripe, who opined that “there is enormous opportunity. In absolute numbers, Africa may be smaller right now than other regions, but online commerce will grow about 30 percent every year.”

The Citron Report further contemplated that, with the current business reality of Jumia Technologies, Alibaba and Softbank as companies that could be interested in becoming a strategic partner or investor in Jumia in order to provide a “direct channel for Chinese goods into the African market.”