Jumia shares rose 600% in 2020. Is that a purchase for 2021?

Jumia Technologies (NYSE: JMIA) was one of the hottest technology stocks in 2020. Shares of the German company, which provides e-commerce services to a dozen African countries, rose more than 600% this year, even though the recession in top markets halted its growth.

Taurus believes Jumia will overcome its short-term challenges and that the advantage of its early initiator in Africa could turn it into an e-commerce beast like Free Market 09.30 NASDAQ: MELI in Latin America. The Bears will notice that Jumia is unprofitable, its shares look expensive, and growth is slowing. Let’s take a new look at Yumi to see which perspective makes more sense.

Opportunities and challenges

The Jumia online marketplace sells a variety of products and services, including travel reservations and food delivery, which mostly come from independent vendors. It also processes payments with its own Jumia Pay service, and fills orders with its own logistics network.

Jumia believes that Africa’s economic expansion and rising mobile internet penetration rates will spur its long-term growth. When Jumia went public last April, the IMF expected Africa’s GDP to grow at a complex annual growth rate of 5.9% between 2018 and 2023. The broadband mobile penetration rate was also expected to rise from 32% in 2017. at 73% in 2023. research firm Ovum.

But this year, the COVID-19 pandemic has plunged several key markets in Yumia, including South Africa and Nigeria, into a deep recession. High inflation rates in Nigeria, Egypt and other countries are also reducing its growth in euros.

Jumia does not distribute revenue by country, but this pressure is reflected in its slowing growth in gross merchandise (GMV) or the value of all goods sold on its platform and revenue over the past year:

YOY = Year after year. Source: Jumia.

That pressure is exacerbated by Jumia’s decision to abolish its smaller original market, which generates higher revenue but generates higher costs, and instead relies on its independent market. It is also turning from higher-priced products like electronics to cheaper products like toiletries and supplies, further reducing its GMV and revenue growth.

To make up for that slower growth, Jumia is cutting its marketing costs to increase its margins – but it still won’t make a profit anytime soon. In the first nine months of 2020, its revenue fell by 12% compared to last year, to 98 million euros (119 million dollars), while operating loss decreased from 167 million to 109 million euros. Its adjusted EBITDA loss decreased from 129 million to 91 million euros ($ 111 million).

But not all bad news …

Jumia’s growth looks bleak compared to the growth of other high-growth e-commerce companies like MercadoLibre or JD.com 09.30 NASDAQ: JD in China. His stock also looks expensive, nearly 20 times more than next year’s sales. MercadoLibre and JD trade 16 times and less than one sale next year.

However, Yumia’s annual active customers continued to grow by 23% year-on-year to 6.7 million in the first nine months of 2020, while the total number of orders increased by 9% to 19.8 million. That’s a small percentage of the population in the 11 major countries of Yumia, but it suggests it will continue to lock more and more customers online as internet penetration rates and revenues climb across Africa.

Its number of transactions on Jumia Pay, which is linked to other third-party services, increased by 34% compared to last year in that period, which increased its total payment volume (TPV) from 74% to 137 million euros (167 million USD). That growth doesn’t yet reduce Yumia’s dependence on the mainstream market, but its fintech platform clearly has room to expand in Africa – where more than two-thirds of adults remain non-banking.

So will Jumia move more in 2021?

At the moment, Jumia is still a speculative game. Analysts expect its revenue to fall 3% this year before rising 27% next year, but those forecasts could be too optimistic given that the company has repeatedly missed estimates of Wall Street revenue from the IPO.

Its platform is still growing, but it sells cheaper products to boost revenue, desperately cuts costs to cut losses, and the biggest markets are facing fierce winds. Jumia has not benefited as much from pandemic-induced purchases as other online markets over the past year, and faces tougher challenges from companies like MercadoLibre and JD.

Yumia shares could grow in the long run as African economies stabilize, but too much growth is expected at these levels. It therefore makes sense to stick to other e-commerce games and visit Jumia again after returning to more reasonable prices.