Often, the biggest winners in the stock market have humble beginnings. They start off as small stocks that either many people don’t know about, or simply write off as too risky. Then, these small, high-risk stocks “grow up”. They capitalize on secular tailwinds, drive robust revenue growth and equally robust margin expansion, and end up turning into huge companies with massive reach and enormous valuations.
With that in mind, I’d like to introduce investors to freshly public Jumia Technologies (NYSE:JMIA). Jumia is Africa’s e-commerce juggernaut. It hit public markets in mid-April at an IPO price of $14.50. Investors jumped on the stock. Less than two weeks after its IPO, Jumia stock is above $37, up more than 150% from its IPO price.
Clearly, some investors think this stock is a big winner.
Africa’s Digital Economy
It very well could be huge. Jumia is at the heart of the currently underdeveloped yet potentially enormous African digital economy. The expansion of this underdeveloped digital economy will be one of the market’s most robust growth narratives over the next decade, much as the expansion of Asia’s formerly underdeveloped digital economy was one of the market’s most robust growth narratives over the past decade.
The Asian digital economy expansion birthed several very, very large companies, such as Alibaba (NYSE:BABA) and JD (NASDAQ:JD). Africa’s digital economy expansion should produce the same, implying a bright future for Jumia, which is presently the most-relevant player in continent’s digital economy, yet has a market cap of under $3 billion.
In other words, Jumia stock is a high-risk, high-reward play on the expansion of Africa’s digital economy. Because there are a plethora of execution and valuation risks here, Jumia stock is not for the faint of heart. But, for investors who have the stomach for volatility and risk, Jumia stock is an attractive pick, especially considering that in an “everything goes right scenario”, this is a multi-bagger in the making.
The Africa Opportunity Is Huge
In the big picture, Jumia stock projects as a potential long term winner because of its robust exposure to the potentially huge African digital economy. Nigeria and South Africa are the largest economies in Africa with a combined GDP of around $750 billion, according to the IMF.
The story here is pretty simple. Africa is the last great frontier of the tech revolution. Internet penetration rates measure around 36% throughout the continent, versus upward of 50% internet penetration everywhere else on Earth, including nearly 90% in North America. That 36% number won’t stay low forever. It’s only a matter of time before Africa catches up. That’s the way technology revolutions works. You have the leaders (North America) and the laggards (Africa), and now it’s time for the laggard to catch up.
Over the next decade, Africa’s internet penetration rate is going to surge higher, and that is going to spark enormous expansion in Africa’s digital economy. The drivers here? Urbanization (only 43% of Africans live in urban centers, versus 80%-plus in North America), middle class expansion (Africa’s middle class is projected to go from 355 million in 2010 to 1.1 billion by 2060), and favorable demographics (the average age in Africa is under 20, versus a global average age north of 30).
Broadly, then, the continent of Africa is going to rapidly urbanize and digitize over the next several years. As it does, all aspects of Africa’s digital economy will boom, from e-commerce, to digital advertising, to cloud services, so on and so forth. Because of this, its digital economy is a market that long term investors should start seeking exposure to now.
Jumia Is The Leader In Africa
When it comes to exposure to Africa’s digital economy, the best option at the present moment is Jumia stock.
Jumia is the most relevant player in Africa’s digital economy today. The heart of Jumia is an e-commerce platform called Marketplace. Jumia Marketplace, which operates in 14 countries throughout Africa, has 81,000 active sellers, 4 million active buyers, and reported nearly $1 billion in gross merchandise value in 2018. Those are big numbers for the still-nascent African e-commerce market, which in combination with the Middle East, only had around 70 million e-commerce shoppers in 2018, of which probably 50 million were from Africa, giving Jumia roughly 8% shopper market share.
Over time, Africa’s 50 million e-commerce shopper number will grow by leaps and bounds. The continent has 1.3 billion people, and is rapidly growing. The population could realistically measure closer to 2 billion within the next decade. In the U.S., roughly two-thirds of Americans are online shoppers. In China, the e-commerce penetration is nearing 50%, and rapidly expanding. Over time, Africa’s e-commerce penetration rate should close in on 50%, too. Assuming this happens roughly a decade down the road when Africa’s population is 2 billion, then that implies 1 billion e-commerce shoppers.
If Jumia nabs roughly 10% of the shoppers, that implies 100 million buyers on Jumia’s platform. That is a potential 25-fold increase over the next decade.
In other words, the long-term upside potential in JMIA stock is enormous. At present, it’s hard to quantify. But, in an “everything goes right” scenario, this company could nab 100 million shoppers at scale. In that scenario, Jumia stock is worth significantly more than $3 billion.
Bottom Line on JMIA Stock
Jumia stock is a largely undiscovered, hyper-growth e-commerce stock with multi-bagger potential, yet a plethora of execution, valuation, and visibility risks. Consequently, this is a high-risk, high-reward play on the African digital economy. JMIA stock isn’t for the faint of heart, but it could pay off big in the long run.
As of this writing, Luke Lango was long JMIA, BABA, and JD.
