Global ecommerce sales are projected to surpass 6.5 trillion in 2022. For perspective, that’s equivalent to almost a third of the current US GDP. Amazon and Alibaba may be the first companies that come to mind, but what about their counterparts in emerging markets?
Jumia Technologies AG is often cited as the Amazon of Africa. While some would laugh at such a bold description, others think it’s only a matter of time before people describe Amazon as the Jumia of America.
The freedom to disagree is one of the most beautiful things about the business world.
Whether you think Jumia is the next millionaire-maker stock or on an inevitable path to bankruptcy, there’s no denying that it’s an interesting journey to watch in a continent that’s had more than its fair share of hardships.
Is Jumia the flagship company destined to lead the charge towards African liberation?
The 3 Edges Jumia Has Over Other Ecommerce Companies
There are three unique advantages that Jumia holds:
Let’s delve a bit deeper into each one…
Jumia only has 6.7 million active customers while there are more than 1.3 billion people in Africa, with their primary market being Nigeria (the company was launched in Lagos initially). Even though the company operates in several African countries, including Egypt, Kenya, Ghana, Tanzania, Uganda, Cameroon, Ivory Coast, Morocco, Tunisia, and others, this means the company’s current customer base accounts for less than 0.5% of the continental population.
In contrast, 69% of the US population shops online. There’s a lot of maturation that needs to occur in terms of financial and digital capabilities before Jumia can think about capturing a larger piece of the pie, but there’s a lot on the horizon to look forward to.
It’s also worth noting that urban development and wide-scale modernization efforts have been fast-tracked by foreign investment. China alone has placed a $60 billion bet on Africa. When the second-largest economy is willing to make an eleven-figure investment, that speaks volumes.
Their customer acquisition cost (CAC) should be relatively low in the years to come since consumers will naturally flock to the biggest player in the region once advances in infrastructure facilitate a better environment for online shopping.
Lastly, their auxiliary services like JumiaPay, Jumia Food, travel bookings, and discount vouchers are bound to make sizable contributions to the company’s bottom line as the number of active customers increases.
Jumia is so early to the market that it has to wait for the continent and its citizens to catch up.
Jumia has the privilege of two great CEOs: Jeremy Hodara and Sacha Poignonnec.
As the old adage goes, two heads are better than one. The company benefits from having double the innovation and administrative bandwidth since the throne at the top is actually more of a couch. I don’t know about you, but I’d take a comfy couch over the Iron Throne any day.
Technically, there’s actually a third CEO in Hesham Safwat who heads the Egyptian division of Jumia. Having a Cairo-born and homegrown businessman operating the Middle East branch will certainly pay off since Safwat knows the regional market like the back of his hand.
Imagine if Facebook had two or even three Mark Zuckerbergs at the helm. Yes, that would be incredibly frightening and haunt my dreams but there’s also no arguing it would give the tech giant a numerical advantage over its competitors.
Only time will tell if Hodara, Poignonnec, and Safwat are comparable to Zuckerberg in their ability to build an empire worthy of antitrust allegations but their shared experience undoubtedly counts for something.
Mastercard, Goldman Sachs, and insurance leader AXA have all invested in Jumia. These are multinationals from the finance space who only put their money where their mouth is when they’re sure the reward outweighs the risk.
Short-selling firm Citron Research accused Jumia of fraud in May 2019 which sent the stock price tumbling on Wall Street — and not even a month after the company became the first African tech listing (JMIA) on the New York Stock Exchange (NYSE) no less.
By October 2021, Citron founder Andrew Left changed his tune and bought shares that he’ll be holding long. He has since deleted the report on Jumia for obvious reasons. The company’s success did more than ward off the short seller, it flipped him into a bull with a $50 price target.
This serves as a reminder that, in the field of ecommerce, proving skeptics wrong is as simple as ignoring their lack of confidence and following through on your plans anyway. To quote Andrew Left himself:
Citron being asked if we would short $JMIA recent run-up NO WAY. We learned lesson shorting e commerce . Bad risk/reward . Pandemic has changed e-com globally $SE$MELI. Appears worst is behind $JMIA. Full report to come next week. https://t.co/MleylDnxLv
It’s only a matter of time before more venture capital firms get behind Jumia — especially once the company starts generating an attractive net income. Speaking of profitability, there are a few things to consider before passing judgment on the company…
How is Jumia a “Good Company” When It Isn’t Profitable Yet?
Yes, Jumia is yet to turn a profit. However, just because a company is in the red that doesn’t mean there’s anything fundamentally wrong with its overall strategy or current valuation. Amazon had to wait seven years to turn its first profit of just $5 million.
That’s literally a drop in the bucket compared to the $2.2 billion in debt that the company had racked up to that point. Eventually, investors saw that it was worth the wait when Amazon reported a net income of over $11 billion in 2019.
Jeff Bezos taught us the valuable lesson that net income isn’t the be-all-end-all of retail. Investing in future success is the doctrine that all ecommerce entrepreneurs should live by. It’s not about bleeding cash by the gallon but betting on your capacity to realize potential.
Sadly, it wasn’t enough for him to keep the top Forbes spot. Sorry not sorry, Elon for life.
Update: Jeff Bezos has reclaimed his title.
Sick burns aside, it just goes to show that lack of profit in the early stages actually makes Jumia more like Amazon rather than less. If a startup selling books could evolve into the colossal online retailer we see today then anything is truly possible.
That being said, Poignonnec has said Jumia will be profitable by 2022 which would mark a huge milestone for the company. There’s no guarantee that they’ll get over the hill that soon but at least a working timeline is in place.
Furthermore, it’s not like Amazon and Jumia are the only businesses in the sector that play the long game. Profitability generally takes a while for many ecommerce platforms. Sea Limited, despite operating in more developed countries, is a prime example of this.
The Singapore-based company had its IPO back in 2017 but hasn’t been able to achieve profitability since then. Take note that it’s not an apple to apple comparison since Sea Limited reported $942 million in revenue from its ecommerce division in 2019 vs. Jumia’s $160 million.
At the end of the day, there’s no question that Jumia has a large enough runway to surpass those figures given enough time. The outcome ultimately comes down to strategic execution from company leadership. If they play their cards right, this will be a growth story for the ages.
Whether you’re an investor looking for a stock to hold long-term or sifting through articles for insights that will benefit your own ecommerce business, Jumia brings a lot to the table. The future may be uncertain, but there’s an explosive path ahead either way.
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So, will you be investing in African companies or putting your life savings in Bitcoin? Let us know in the comments down below. We’re always happy to hear the insights of our readers. That’s all for now, stay safe, and happy commerce.
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