Is Jumia Stock Price the main reason as to why investors are losing out?
Well, Jumia Technologies, the German company that provides e-commerce services to about 12 African counties had its shares surge to more than 500% over the past 12 months, boosting its market cap to about $3.25 billion, or 15 times next year’s sales.
Jumia countries of operation
It is currently operating in Algeria, Cote d’Ivoire, Egypt, Ghana, Kenya, Morocco, Nigeria, Senegal, South Africa, Tunisia, and Uganda.
The rise of Jumia
Jumia impressed investors with its robust gross merchandise volume (GMV) and revenue growth in 2018.
In April 2019, the leading pan-African e-commerce platform officially announced its listing on the New York Stock Exchange.
Founded in 2012, Jumia leveraged technology to deliver innovative, convenient and affordable online services to consumers.
Jumia Growth
After announcing its listing on the New York Stock Exchange, Jumia did well, attracting investors.
However, its growth decelerated significantly in 2019 and 2020.
In 2019, Jumia shut down its operations in Cameroon, Tanzania, and Rwanda to streamline its business and boost its margins.
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It wound down its capital-intensive first-party marketplace in favor of third-party sellers, and it pivoted away from pricier products like electronics and toward cheaper consumer staples to attract more shoppers.
Jumia’s active customers
All those moves throttled Jumia’s GMV and revenue growth, but its number of annual active customers still grew 54% year over year to 6.1 million in 2019 as its total orders rose 49% to 8.3 million.
Unfortunately, the pandemic pushed several of its top African markets, including Nigeria and South Africa, into recessions last year. Those macro headwinds, along with high inflation rates across the region, are further reducing its GMV and revenue growth — which are reported in euros.
Jumia’s number of annual active customers still grew 23% year over year to 6.7 million in the third quarter, but its total orders slipped 5% to 6.6 million.
Analysts expect its revenue to decline 4% for the full year, but rebound 27% next year as the pandemic passes and its major markets recover.
Should investors consider Jumia Stock for now?
Jumia generates a majority of its revenue from western Africa. Its markets account for over 70% of Africa’s GDP and internet users and 600 million of the continent’s people. For these reasons and more, JMIA stock is up over 1,000% in the last year.
However, after the shares’ strong bull run, investors should steer clear of the African e-commerce platform. JUMIA stock is trading at a trailing price-sales ratio of 26 times at a time when Amazon’s P/S ratio is 4.4 times. Plus, I believe investors have already priced in Jumia’s future profits.
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The company operates in a volatile, unstable market. The next global growth engine, Africa has a great deal of potential. However, it still has major infrastructure issues that need to be addressed.
Taking all these factors into account, it’s possible to understand why most Wall Street analysts covering the stock have given it a “hold” rating.
Is Jumia Stock Price overvalued?
Jumia stock appears to be stressed. For 2020, analysts, on average, expect its revenue to fall 13.2%, with its growth rebounding to 12.6% this year.
The company’s third-quarter earnings release shows why its sales likely dropped last year.
Jumia’s CFDR (cancellations, failed deliveries, or returns) rate, a key metric for any e-commerce platform, was a staggering 23% of its gross merchandise value.
And the retailer had 6.7 million active annual customers in Q3, from which it generated 6.6 million orders in the period.
Overall, Jumia’s 2020 revenue performance, stressed outlook, lack of profitability, cash burn, and geopolitical and internet risks combine to make JMIA stock extremely overvalued.
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The company is already active in the high growth areas of the African continent. Internet penetration rates in Jumia’s markets will improve with time, enabling it to add more customers.
However, before that, the company has to concentrate on raising its sales volumes and increasing the average value of its orders.
Jumia stock compared to other e-commerce giants
It seems irrational for Jumia to trade at a similar price-to-sales ratio as MercadoLibre when it’s growing at a much slower rate. But Jumia also remains pricier than other established e-commerce giants like JD.com and Amazon
JD, China’s largest direct retailer, is expected to grow its revenue and earnings by 23% and 40%, respectively, next year. But its stock trades at just 40 times forward earnings, and less than one times next year’s sales.
Analysts expect Amazon’s revenue and earnings to rise by 18% and 30%, respectively, next year. The stock trades at 60 times forward earnings and just over three times next year’s sales.
As an underdog in an emerging market, Jumia should be generating stronger growth than these bigger companies to justify its high price-to-sales ratio. But it’s not, it’s merely attracting investors with the future growth potential of Africa’s e-commerce and digital payments markets.
Jumia’s future plans, stock and African opportunity
Jumia is seeking to become a fully integrated platform, offering e-commerce, logistics and payments.
Its logistics service enables the shipment and delivery of packages from sellers to consumers. And the company’s payment service facilitates transactions among those who are active on its platform in selected markets.
Its target market, Africa, is perhaps the most enticing aspect of its business model. Africa is the world’s second-largest and second-most-populous continent, trailing only Asia in both metrics.
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There is a lot of pent-up demand among younger Africans for internet services. Even though Egypt, Nigeria, South Africa, Algeria, and Morocco, referred to as the “power five” markets, are home to the vast majority of Africa’s internet users, the rest of the continent remains thirsty for e-commerce, mobile banking, fintech, payments, and other financial services.
Amidst this backdrop, it’s possible to understand why the company is doing so well. Specifically, investors are betting big that the growing African middle class will help the company become the “Amazon of Africa.”
