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2023-10-31
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Jumia: Challenging Prospects
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":236287741730840,"tweetId":"236287741730840","gmtCreate":1698709430729,"gmtModify":1698709431981,"author":{"id":3517201798371891,"idStr":"3517201798371891","authorId":3517201798371891,"authorIdStr":"3517201798371891","name":"老虎不糊","avatar":"https://static.tigerbbs.com/ecb24874d5cc5fe36bdb32282423bb86","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":59,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"html":"<html><head></head><body>这篇文章不错，转发给大家看看</body></html>","htmlText":"<html><head></head><body>这篇文章不错，转发给大家看看</body></html>","text":"这篇文章不错，转发给大家看看","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/236287741730840","repostId":2377874625,"repostType":2,"repost":{"id":"2377874625","pubTimestamp":1698076859,"share":"https://www.laohu8.com/m/news/2377874625?lang=&edition=full","pubTime":"2023-10-24 00:00","market":"us","language":"en","title":"Jumia: Challenging Prospects","url":"https://stock-news.laohu8.com/highlight/detail?id=2377874625","media":"seekingalpha","summary":"Jumia sees good progress on reducing losses and cash burn; however, this was largely driven by cuts to marketing expenses.Near-term outlook is unexciting due to macro challenges.Challenging medium-ter","content":"<html><body><ul><li>Jumia sees good progress on reducing losses and cash burn; however, this was largely driven by cuts to marketing expenses.</li><li>Near-term outlook is unexciting due to macro challenges.</li><li>Challenging medium-term growth prospects due to funding constraints and rising competition from strong players with considerable competitive advantages.</li></ul><p><figure><picture> <img height=\"1152px\" loading=\"lazy\" sizes=\"(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px\" src=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w750\" srcset=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg?io=getty-c-w240 240w\" width=\"1536px\"/> </picture><figcaption> <p>Slimoche</p></figcaption></figure></p> <p>Pan-African online retailer Jumia (<span>NYSE:JMIA</span>) faces challenging near term prospects largely driven by macro challenges in the region. While cost cuts have helped narrow losses and reduce cash burn this has come at the expense of marketing expenses<span> and a shrinking ecosystem which may impact their competitiveness longer term in a market that may evolve into an oligopoly dominated by a handful of the strongest players given the competitiveness of the retail industry. Funding constraints and increasing competitive pressures raises question marks over their medium term growth and earnings prospects.</span></p> <h2>Company Overview</h2> <p>Often nicknamed the Amazon of Africa, Jumia is a pan-African online retail platform comprising their eCommerce marketplace which connects merchants with shoppers across a variety of goods and services (including food delivery, grocery delivery), their online payments service JumiaPay which enables shoppers to make payments to merchants for orders as<span> well as make other payments such as bill payments, and Jumia Logistics their logistics service which facilitates order fulfillment for merchants on Jumia’s own platform as well as third party businesses needing fulfillment services. Jumia Lending, their merchant financing solution, enables merchants to access funding provided by third-party financial institutions.</span></p> <p>The company has a presence in three regions in Africa consisting of 11 countries (West Africa, which includes Ghana, Ivory Coast, Nigeria and Senegal; North Africa, which includes Algeria, Egypt, Morocco and Tunisia; and East and South Africa, which includes Kenya, South Africa and Uganda) which collectively generate approximately 70% of Africa’s $3 trillion GDP in 2022. Nigeria, Egypt, Kenya, Morocco and Ivory Coast are Jumia’s top five markets.</p> <h2>1H 2023 performance</h2> <p>1H 2023 revenues declined 9.7% on the back of declines across all key operating metrics as well as foreign currency impacts. Quarterly active consumers declined 22.5% and 28% in Q1 2023 and Q2 2023 respectively (reaching 2.4 million users at the end of Q2 2023). Orders dropped 31.4% and GMV dropped 23.5% in 1H 2023 contributing to a drop in JumiaPay Total Payment Volume (TPV) which fell 27.2% and JumiaPay Transactions which dropped 37.8% in 1H 2023.</p> <p>All revenue streams except Commissions declined in 1H 2023. Commissions revenue increased due to commission take rate increases implemented in mid-2022.</p> <p><figure contenteditable=\"false\"><picture> <img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/10/22/saupload_EWgkbbOYyHdKnyujmnDwOvO6kNJskfz8WMSe3HQGtKLAO9kmWnJt5xWyltNaj_KqRTqEXGhv6MJ59CxGGfT1WbX-Vlm4W7t-NuE5KOdzZ3rXx85uP6AibU28XnB-d2V0eowbvPFn9I58RkOy5oopt7A.png\"/> </picture><figcaption><p><span>Jumia Technologies 6-K, Q2 2023</span></p></figcaption></figure></p> <p>The declines were driven by a number of factors notably macro challenges in the African region (average inflation level across Jumia’s footprint reached 14% in June 2023) which impacted consumer spending power, import restrictions which impacted sellers ability to source goods from overseas, category rationalization which saw management exit unprofitable operations (such as their first-party grocery service and many digital services offered through JumiaPay) and foreign exchange impacts.</p> <p>Gross margin improved to 57.6% in 1H 2023 from 54.3% the same period last year, helped by the commission take-rate increase implemented in mid-2022. Operating losses narrowed on the back of cost cutting efforts with operating margin improving from negative 127% in 1H 2023 to negative 58% 1H 2023, largely driven by a 71% YoY drop in Sales & Advertising expenses. The company’s operating cash flow improved to negative $39.7 million in 1H 2023 from negative $133 million the prior year period.</p> <p>Near term, a challenging macro environment, and the company’s continued exit of unprofitable business lines is likely to result in continued revenue declines. Soaring inflation, partly driven by soaring food prices which accounts for the bulk of household budgets in the region (in Nigeria and Kenya, two of Jumia’s top 5 markets, food accounts for 56% and 47% of household budgets respectively compared with about 6% in the U.S.) is crimping consumer purchasing power and therefore ad budgets, and the company may continue to review and exit low value business lines (such as food delivery as noted in their FY222 annual filing).</p> <p>Management’s focus on further cost cuts may help lessen losses this year although the company is likely to remain unprofitable. FY 2023 Sales & Advertising expenses are expected to be between $20 million - $30 million (compared to $76 million in 2022) on the back of reduced online marketing spend and increased offline spend as the company reduces focus on promotion-heavy digital services offered on JumiaPay, and shifts ad dollars to more cost effective channels such as offline advertising which according to management better drives awareness as detailed in their latest annual filing.</p> <h2>Prospects</h2> <p>Africa’s eCommerce growth story is intact with growth projected in the double digits over the coming years. While focusing on profitability, management’s growth strategy involves increasing the marketplace platform’s appeal by focusing on categories with underserved demand (such as mobile phones and electronics, fashion and beauty products) and increasing penetration into existing geographical markets (which implies an expansion into lower tier and rural regions). This may help support Commissions growth, their biggest revenue stream accounting for about a quarter of revenues in 1H 2023.</p> <p>Meanwhile, the shift in higher value categories could improve unit economics (average order value rose 18% YoY to $31 in Q2 2023), however this may be offset by their expansion into lower tier regions where smaller basket sizes (relative to urban shoppers) and poor logistics infrastructure is likely to result in higher fulfillment costs and possibly an increase in failed delivery rates (Jumia’s “Cancellations, Failed Deliveries and Returns” (“CFDR”) rate as a percentage of GMV was around 20% in 2022 and the CFDR rate as a percentage of Orders was around 15% in 2022). Despite efforts to reduce their CFDR by encouraging buyers to pay upfront through JumiaPay, CFDR has improved very slowly over the years and customers continue to favor cash on delivery (COD) with “a high proportion of transactions” on Jumia’s marketplace settled in cash. Just 30% of orders on the platform paid for through JumiaPay as of 2022. More likely than not, rural shoppers may favor COD as well given its obvious benefits to buyers.</p> <p>Management's cost cutting effort can only go so far; growth may be needed to achieve profitability through scale economies. For perspective, Chinese eCommerce player PDD Holdings (whose customer base is relatively budget conscious compared to fellow rivals like JD.com), turned profitable at the end of 2021 (six years after its founding) when their active buyers exceeded 800 million by December 2021. Jumia, founded over a decade ago, has just 8.4 million active annual customers as of December 2022, a fraction of the more than 400 million population in their top four markets i.e., Nigeria, Egypt, Kenya and Morocco. The company’s top-line growth of 14% CAGR over the past five years lags far behind PDD whose revenues grew at 134% CAGR during the same period.</p> <p><figure contenteditable=\"false\"><picture> <img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/10/22/saupload_H92p9Qhe_tsg559tN1_4X7Vwc90dNH5NmWD7XDwVjKQ0yejw1wQYCBhpUjMAmxbdbfeQc9ltGXurX2JlsCkUtn6zV7XJHyE9GDzJkso731xz_WM_DTWM2nM0pgClikWTkps6Z4hl9bSwd9YuNmf1IEY.png\"/> </picture><figcaption><p><span>Author</span></p></figcaption></figure></p> <p>PDD's consistent growth has translated into a consistently improving earnings performance in contrast to Jumia.</p> <p><figure contenteditable=\"false\"><picture> <img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/10/22/saupload_1Fy7tiX5KiBcPFSg2LbpC_K-hetQF9y-UPPKzewjDZX5_a8RKk7jdghQjyaEcdX1vdPieIvd5TxzFnVixIBklMU81335lXF_hhKQfTiupA82q0GzLjBgH4pKQjjgzu06HAEPiJXAL3tBRfNrvhELihY.png\"/> </picture><figcaption><p><span>Author</span></p></figcaption></figure></p> <p>Management has not given any firm guidance on when breakeven could be achieved however a shrinking digital ecosystem and limited financial resources to make necessary logistics investments to support expansion (the company’s bank balance of $166 million as of June 2023 could support them for a couple of years or so at their current burn rate, 1H 2023 free cash flow = approximately -$40 million) does not bode well for growth and therefore earnings prospects.</p> <p>It also leaves the company more vulnerable to competitive pressures from stronger players; Amazon has announced their entry into South Africa in 2024, which could give them a platform to gradually access the rest of Africa. Amazon has considerable advantages including financial resources, access to global marketplace platforms enabling Africans easy access to an unrivaled number of overseas vendors, as well as a massive ecosystem of consumer products and services (including eBooks, video streaming etc) to entice shopper loyalty and repeat purchases through their highly successful Amazon Prime membership.</p> <p>Chinese fast fashion giant Shein is already gaining rapid traction in South Africa driven by word of mouth, and could see similar traction in the rest of Africa as well, potentially threatening Jumia’s ambitions in the fashion segment given Shein’s supply chain advantages.</p> <h2>Valuation</h2> <p>Jumia has a sell analyst consensus rating.</p> <p><figure contenteditable=\"false\"><picture> <img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/10/22/saupload_XdfP_g8vrt80EYO12zD6ymBLdYImoaoc9DQf4MnBH9qYAQPu-HxqYhZ_H_bV47FNvcVhe-aybQ3EKxyjv_9yeZnEILMWd47x9TLRd5Z0RAeRZPY3l-S3iWcnP1wLoHU1oQLxxxBLe4eH1x2dIymkodI.png\"/> </picture><figcaption><p><span>Seeking Alpha</span></p></figcaption></figure></p> <p>Jumia’s growth and financial performance over the past decade has been unexciting, and the company continues to burn cash. While losses have been narrowing, it has come at the expense of reduced marketing spend and a shrinking ecosystem. The company is resource constrained leaving question marks over their ability to make necessary investments to support growth and defend market share against new competitors seeking to capitalize on Africa’s eCommerce growth story. Some of these competitors wield considerable competitive advantages over Jumia including a wide global presence and access to global vendors, funding, supply chain, and arguably a more compelling value proposition due to a wider ecosystem of consumer services.</p> <p>Jumia’s market valuation of $234 million is 2.3 times their forward book value, and 1.2 times their forward sales, both higher than the sector median of 2.2 and 0.78 respectively, a pricey valuation for a company with a weak outlook near term and uncertain growth prospects medium term. A short interest of 10% suggests investor pessimism over the company’s prospects.</p> <div></div> <p><figure contenteditable=\"false\"><picture> <img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/10/22/saupload_Z_WYMED-GCdzPnmKX2jZwpJzUGmmOGrb9-33p5_zWu0r2PZvdv-AKnooIu-LpZBzcfEfl6y1-yRK_zHPaPr58cMA-i18E4gyVGaQ4XjKRLgSU9VrEQ9-bJiS4ZAutE4XheSxdub1lvx_7JJTjgkESTs.png\"/> </picture><figcaption><p><span>Seeking Alpha</span></p></figcaption></figure></p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Jumia: Challenging Prospects</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nJumia: Challenging Prospects\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-10-24 00:00 GMT+8 <a href=https://seekingalpha.com/article/4642632-jumia-challenging-prospects><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Jumia sees good progress on reducing losses and cash burn; however, this was largely driven by cuts to marketing expenses.Near-term outlook is unexciting due to macro challenges.Challenging medium-...</p>\n\n<a href=\"https://seekingalpha.com/article/4642632-jumia-challenging-prospects\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1370488541/image_1370488541.jpg","relate_stocks":{"LU0061474705.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN \"AU\" (USD) ACC","BK4538":"云计算","LU0130102774.USD":"Natixis Harris Associates US Equity RA USD","BK4550":"红杉资本持仓","IE00B1BXHZ80.USD":"Legg Mason ClearBridge - US Appreciation A Acc USD","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","LU0276348264.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN\"AUP\" (USD) INC","LU0061475181.USD":"THREADNEEDLE (LUX) AMERICAN \"AU\" (USD) ACC","BK4122":"互联网与直销零售","BK4551":"寇图资本持仓","LU0130103400.USD":"Natixis Harris Associates Global Equity RA USD","LU0211327993.USD":"TEMPLETON GLOBAL EQUITY INCOME \"A\" (USD) ACC","BK4561":"索罗斯持仓","LU0256863811.USD":"ALLIANZ US EQUITY \"A\" INC","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1 Acc SGD-H","IE0009356076.USD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A2\" (USD) ACC","LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","LU0528227936.USD":"富达环球人口趋势基金A-ACC","BK4548":"巴美列捷福持仓","IE00B775SV38.USD":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) ACC","LU0109391861.USD":"富兰克林美国机遇基金A Acc","IE00B3S45H60.SGD":"Neuberger Berman US Multicap Opportunities A Acc SGD-H","LU0417517546.SGD":"Allianz US Equity Cl AT Acc SGD","IE0004445239.USD":"JANUS HENDERSON US FORTY \"A2\" (USD) ACC","IE00B19Z9505.USD":"美盛-美国大盘成长股A Acc","JMIA":"Jumia Technologies AG","LU0053666078.USD":"摩根大通基金-美国股票A（离岸）美元","LU0079474960.USD":"联博美国增长基金A","BK4532":"文艺复兴科技持仓","LU0082616367.USD":"摩根大通美国科技A（dist）","GB00BDT5M118.USD":"天利环球扩展Alpha基金A Acc","BK4554":"元宇宙及AR概念","LU0354030438.USD":"富国美国大盘成长基金Cl A Acc","LU0353189680.USD":"富国美国全盘成长基金Cl A Acc","LU0061474960.USD":"天利环球焦点基金AU Acc","BK4585":"ETF&股票定投概念","LU0354030511.USD":"ALLSPRING U.S. LARGE CAP GROWTH \"I\" (USD) ACC","BK4534":"瑞士信贷持仓","BK4507":"流媒体概念","BK4533":"AQR资本管理(全球第二大对冲基金)","LU0234572021.USD":"高盛美国核心股票组合Acc","LU0310799852.SGD":"FTIF - Templeton Global Equity Income A MDIS SGD","BK4566":"资本集团","LU0353189763.USD":"ALLSPRING US ALL CAP GROWTH FUND \"I\" (USD) ACC","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","AMZN":"亚马逊","BK4220":"综合零售","BK4535":"淡马锡持仓","BK4559":"巴菲特持仓"},"source_url":"https://seekingalpha.com/article/4642632-jumia-challenging-prospects","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2377874625","content_text":"Jumia sees good progress on reducing losses and cash burn; however, this was largely driven by cuts to marketing expenses.Near-term outlook is unexciting due to macro challenges.Challenging medium-term growth prospects due to funding constraints and rising competition from strong players with considerable competitive advantages. Slimoche Pan-African online retailer Jumia (NYSE:JMIA) faces challenging near term prospects largely driven by macro challenges in the region. While cost cuts have helped narrow losses and reduce cash burn this has come at the expense of marketing expenses and a shrinking ecosystem which may impact their competitiveness longer term in a market that may evolve into an oligopoly dominated by a handful of the strongest players given the competitiveness of the retail industry. Funding constraints and increasing competitive pressures raises question marks over their medium term growth and earnings prospects. Company Overview Often nicknamed the Amazon of Africa, Jumia is a pan-African online retail platform comprising their eCommerce marketplace which connects merchants with shoppers across a variety of goods and services (including food delivery, grocery delivery), their online payments service JumiaPay which enables shoppers to make payments to merchants for orders as well as make other payments such as bill payments, and Jumia Logistics their logistics service which facilitates order fulfillment for merchants on Jumia’s own platform as well as third party businesses needing fulfillment services. Jumia Lending, their merchant financing solution, enables merchants to access funding provided by third-party financial institutions. The company has a presence in three regions in Africa consisting of 11 countries (West Africa, which includes Ghana, Ivory Coast, Nigeria and Senegal; North Africa, which includes Algeria, Egypt, Morocco and Tunisia; and East and South Africa, which includes Kenya, South Africa and Uganda) which collectively generate approximately 70% of Africa’s $3 trillion GDP in 2022. Nigeria, Egypt, Kenya, Morocco and Ivory Coast are Jumia’s top five markets. 1H 2023 performance 1H 2023 revenues declined 9.7% on the back of declines across all key operating metrics as well as foreign currency impacts. Quarterly active consumers declined 22.5% and 28% in Q1 2023 and Q2 2023 respectively (reaching 2.4 million users at the end of Q2 2023). Orders dropped 31.4% and GMV dropped 23.5% in 1H 2023 contributing to a drop in JumiaPay Total Payment Volume (TPV) which fell 27.2% and JumiaPay Transactions which dropped 37.8% in 1H 2023. All revenue streams except Commissions declined in 1H 2023. Commissions revenue increased due to commission take rate increases implemented in mid-2022. Jumia Technologies 6-K, Q2 2023 The declines were driven by a number of factors notably macro challenges in the African region (average inflation level across Jumia’s footprint reached 14% in June 2023) which impacted consumer spending power, import restrictions which impacted sellers ability to source goods from overseas, category rationalization which saw management exit unprofitable operations (such as their first-party grocery service and many digital services offered through JumiaPay) and foreign exchange impacts. Gross margin improved to 57.6% in 1H 2023 from 54.3% the same period last year, helped by the commission take-rate increase implemented in mid-2022. Operating losses narrowed on the back of cost cutting efforts with operating margin improving from negative 127% in 1H 2023 to negative 58% 1H 2023, largely driven by a 71% YoY drop in Sales & Advertising expenses. The company’s operating cash flow improved to negative $39.7 million in 1H 2023 from negative $133 million the prior year period. Near term, a challenging macro environment, and the company’s continued exit of unprofitable business lines is likely to result in continued revenue declines. Soaring inflation, partly driven by soaring food prices which accounts for the bulk of household budgets in the region (in Nigeria and Kenya, two of Jumia’s top 5 markets, food accounts for 56% and 47% of household budgets respectively compared with about 6% in the U.S.) is crimping consumer purchasing power and therefore ad budgets, and the company may continue to review and exit low value business lines (such as food delivery as noted in their FY222 annual filing). Management’s focus on further cost cuts may help lessen losses this year although the company is likely to remain unprofitable. FY 2023 Sales & Advertising expenses are expected to be between $20 million - $30 million (compared to $76 million in 2022) on the back of reduced online marketing spend and increased offline spend as the company reduces focus on promotion-heavy digital services offered on JumiaPay, and shifts ad dollars to more cost effective channels such as offline advertising which according to management better drives awareness as detailed in their latest annual filing. Prospects Africa’s eCommerce growth story is intact with growth projected in the double digits over the coming years. While focusing on profitability, management’s growth strategy involves increasing the marketplace platform’s appeal by focusing on categories with underserved demand (such as mobile phones and electronics, fashion and beauty products) and increasing penetration into existing geographical markets (which implies an expansion into lower tier and rural regions). This may help support Commissions growth, their biggest revenue stream accounting for about a quarter of revenues in 1H 2023. Meanwhile, the shift in higher value categories could improve unit economics (average order value rose 18% YoY to $31 in Q2 2023), however this may be offset by their expansion into lower tier regions where smaller basket sizes (relative to urban shoppers) and poor logistics infrastructure is likely to result in higher fulfillment costs and possibly an increase in failed delivery rates (Jumia’s “Cancellations, Failed Deliveries and Returns” (“CFDR”) rate as a percentage of GMV was around 20% in 2022 and the CFDR rate as a percentage of Orders was around 15% in 2022). Despite efforts to reduce their CFDR by encouraging buyers to pay upfront through JumiaPay, CFDR has improved very slowly over the years and customers continue to favor cash on delivery (COD) with “a high proportion of transactions” on Jumia’s marketplace settled in cash. Just 30% of orders on the platform paid for through JumiaPay as of 2022. More likely than not, rural shoppers may favor COD as well given its obvious benefits to buyers. Management's cost cutting effort can only go so far; growth may be needed to achieve profitability through scale economies. For perspective, Chinese eCommerce player PDD Holdings (whose customer base is relatively budget conscious compared to fellow rivals like JD.com), turned profitable at the end of 2021 (six years after its founding) when their active buyers exceeded 800 million by December 2021. Jumia, founded over a decade ago, has just 8.4 million active annual customers as of December 2022, a fraction of the more than 400 million population in their top four markets i.e., Nigeria, Egypt, Kenya and Morocco. The company’s top-line growth of 14% CAGR over the past five years lags far behind PDD whose revenues grew at 134% CAGR during the same period. Author PDD's consistent growth has translated into a consistently improving earnings performance in contrast to Jumia. Author Management has not given any firm guidance on when breakeven could be achieved however a shrinking digital ecosystem and limited financial resources to make necessary logistics investments to support expansion (the company’s bank balance of $166 million as of June 2023 could support them for a couple of years or so at their current burn rate, 1H 2023 free cash flow = approximately -$40 million) does not bode well for growth and therefore earnings prospects. It also leaves the company more vulnerable to competitive pressures from stronger players; Amazon has announced their entry into South Africa in 2024, which could give them a platform to gradually access the rest of Africa. Amazon has considerable advantages including financial resources, access to global marketplace platforms enabling Africans easy access to an unrivaled number of overseas vendors, as well as a massive ecosystem of consumer products and services (including eBooks, video streaming etc) to entice shopper loyalty and repeat purchases through their highly successful Amazon Prime membership. Chinese fast fashion giant Shein is already gaining rapid traction in South Africa driven by word of mouth, and could see similar traction in the rest of Africa as well, potentially threatening Jumia’s ambitions in the fashion segment given Shein’s supply chain advantages. Valuation Jumia has a sell analyst consensus rating. Seeking Alpha Jumia’s growth and financial performance over the past decade has been unexciting, and the company continues to burn cash. While losses have been narrowing, it has come at the expense of reduced marketing spend and a shrinking ecosystem. The company is resource constrained leaving question marks over their ability to make necessary investments to support growth and defend market share against new competitors seeking to capitalize on Africa’s eCommerce growth story. Some of these competitors wield considerable competitive advantages over Jumia including a wide global presence and access to global vendors, funding, supply chain, and arguably a more compelling value proposition due to a wider ecosystem of consumer services. Jumia’s market valuation of $234 million is 2.3 times their forward book value, and 1.2 times their forward sales, both higher than the sector median of 2.2 and 0.78 respectively, a pricey valuation for a company with a weak outlook near term and uncertain growth prospects medium term. A short interest of 10% suggests investor pessimism over the company’s prospects. 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