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Jumia Technologies Is a High-Risk E-Commerce Holding for the Adventurous

E-commerce marketplace firm Jumia Technologies (NYSE:JMIA) has been touted as the African equivalent of Amazon (NASADQ:AMZN) or Alibaba (NYSE:BABA). I must admit that I expressed a bullish outlook on Jumia stock in early September.

Source: Christopher Penler /

The Jumia stock price climbed quickly after I made the bullish call. However, its price action looks shaky now. It moves quickly in both directions, so it’s not for everyone.

As long as you’re aware of its risks, then Jumia might be worth making a small part of your portfolio. Or you could just buy the stock whenever it dips as a short-term trade.

If you’re planning to hold the shares for the long haul, then you’ll need to be ready for a roller-coaster ride. Africa might be the next frontier for e-commerce, but trying to identify the next Amazon or Alibaba is a tricky proposition.

A Closer Look at Jumia Stock

Just to give you a taste of Jumia’s high-beta moves, let’s take a look at the last day of October. On that day, the share price tumbled 13.38% in a single trading session.

We’ve seen even bigger single-day price moves by Jumia stock, especially in July and August. During that time, the share price made a round trip from $9 and change to $23.90 and back.

October was also wild for Jumia. First, it went on a rocket ride from the $8 area to $18. But as I mentioned earlier, the month ended on a sour note.

Perhaps the stock is forming a range. Nimble traders might try buying the stock if it falls to $9 and then selling it if it ascends to $18. The prospect of doubling one’s money is certainly enticing.

Or you can just buy and hold the shares if you truly believe in the company. In that case, we’ll need to determine whether Africa is ready for an e-commerce enterprise like Jumia.

A Blue-Sky Opportunity

At the very least, we can say that the African e-commerce market isn’t saturated. Judging by the continent’s internet usage statistics, there’s apparently still plenty of e-commerce gold to be mined there.

Africa is a vast continent with an estimated population of 1.3 billion, or 17% of the world’s population. Yet Africa only had 632 million internet users as of Sept. 30.

This means that Africa’s internet penetration rate is just 47.1%. That’s much lower than any other continent. Just to give you a basis for comparison, the internet penetration rate for North America is 90.3% and for Europe it’s 87.2%.

At the same time, Africa’s internet penetration grew an astonishing 13,900% from 2000 to 2020. As a result, Jumia has a hyper-growth, blue-sky opportunity. But is Jumia the right company to seize it?

Changing a Continent

If any company is serious about connecting businesses and customers throughout Africa, it’s Jumia. With an addressable market of 1.2 billion consumers, Jumia recorded more than 1 billion visits to its marketplace last year.

Okay, so that might not impress fans of Amazon or Alibaba. But again, those companies operate in regions with massive internet penetration. They’re big fish in big ponds, whereas Jumia is a growing fish in a growing pond.

All things considered, Jumia is making significant strides in African e-commerce. Amazingly, the company’s platform processes one transaction or lead every two seconds.

Furthermore, there are 110,000 active sellers on Jumia’s platform, and it lists more than 40 million products, restaurants and other services.

Jumia strives to “improve the quality of everyday life in Africa by leveraging technology to deliver innovative, convenient and affordable online services to consumers, while helping businesses grow as they use  Jumia’s platform to better reach and serve consumers.”

It’s a lofty objective, but judging by Jumia’s stats so far, the company is already making an impact.

The Bottom Line

By investing in Jumia stock, you’ll be taking a chance on a disrupter with high aspirations.

There’s risk involved, so please keep your position size small. Jumia  could quickly double or get cut in half. In the long run, however, it has the potential for tremendous growth as it endeavors to bring the e-commerce revolution to Africa.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media,

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