Once upon a time, Jumia (NYSE:JMIA) stock was labeled as the “Amazon (NASADQ:AMZN) of Africa,” a company that could follow in the footsteps of Alibaba (NYSE:BABA) and replicate the Amazon business model in its home geography, where Amazon doesn’t have a large presence.
JMIA stock price reflected this optimism. Within days of its April 2019 IPO, it ran up from $14.50 to $50.
Over the course of the next year, Jumia stock dropped all the way to $2 and change.
Why?
Because Jumia was all hype, no substance. As it turns out, Africa isn’t quite ready for an e-commerce boom because hardly anyone is on the internet, let alone buying things online. Jumia’s revenue growth rates have turned negative. Profits have been under pressure. And the stock has collapsed.
But JMIA stock is rebounding strongly in 2020, with shares up 100% year-to-date.
And I think this could be the beginning of a much bigger and longer-lasting breakout in the stock.
Covid-19 Starts the Digital Revolution
It’s no secret that the novel coronavirus pandemic accelerated the shift to digital products and services in 2020. And Africa has been no exception to the trend.
It’s been a difficult transition, but in 2020, African consumers have pivoted to more broadly adopting digital products and services, meaning Africa’s digital economic revolution may have finally started.
Jumia’s recently reported second-quarter numbers reflect this reality. Jumia reported 40% growth in active customers in Q2, 38% growth in marketplace revenue and 106% in payment volume growth through in digital payments business, JumiaPay.
At the same time, management is appropriately executing against cost cutting and fulfillment optimization initiatives, which has resulted in a significant improvement in gross margins year-to-date (up more than 12 percentage points) and huge reductions in the opex base (down more than 18% year-over-year).
The result? Jumia’s gross profits are soaring (up 38% in Q2) while operating loss is significantly narrowing (down 44% in Q2).
In other words, against the backdrop of some major secular tailwinds, Jumia is executing strongly and growing nicely, which is powering a big rebound in JMIA stock.
I think this rebound is just getting started.
5G Sustains It
If Covid-19 started Africa’s digital economic revolution in 2020, then 5G will sustain it over the next decade.
5G is wireless tech. You don’t need big fiber optic cables to make it work. You just need a few base stations. Those base stations beam high-speed mobile internet connectivity to everyone, all the time, regardless of where they live.
To that end, 5G offers a highly scalable, flexible and affordable way to implement robust mobile-based internet infrastructure. That’s something that is needed in Africa, where fixed internet infrastructure is scarce.
That’s why Africa is jumping on the 5G bandwagon. Telecommunications company MTN Group has already started deploying superfast 5G mobile internet throughout Nigeria. Safaricom plans to launch 5G mobile internet services in Kenya this year. Vodacom (OTCMKTS:VDMCY) has launched a 5G network in Lesotho. Multiple companies are running 5G trials in South Africa.
More companies and countries will follow suit over the next few years, meaning the 5G revolution of the 2020s will allow Africa to leapfrog into the modern era of ubiquitous high-speed internet connectivity.
As that happens, Africa’s e-commerce market will start to boom, especially since Covid-19 has already kick-started the digital revolution.
Supported by nearly 100% growth in mobile phone users, Africa’s e-commerce market is expected to grow by more than 400% to $75 billion by 2025, according to joint research from Ericsson and McKinsey.
Jumia will be at the epicenter of this boom, implying big future growth prospects for JMIA stock.
Bottom Line on JMIA Stock
Once upon a time, JMIA stock was all hype and no substance.
But times are changing, and substance is starting to arrive in the Jumia growth narrative.
Over the next several years, Covid-19 and 5G-related tailwinds will spark enormous growth in what has been a relatively dormant African digital economy. As that happens, Jumia will finally turn into what it was supposed to be from the start.
It will be the Amazon of Africa.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long AMZN.
