I first covered Jumia (NYSE:JMIA) – which operates an e-commerce and payments platform in Africa – for InvestorPlace.com in early November and took a bullish position. At the time, the JMIA stock was trading at $19. And yes, it has since had a nice move on the upside, with the price now at $33.53, up about 76%. Admittedly, I didn’t think things would go this fast!
But of course, when it comes to tech stocks this year, there are often many sudden moves. Yet as for JMIA stock, I think there is more on the upside. The opportunity does look quite compelling.
However, there are still notable risks to keep in mind as well. Consider that back in March, JMIA stock was trading around $2.33.
The company has had issues with its cash position as the losses have continued. There is also more competition in Africa and many of the countries have infrastructures that need much improvement.
Thus, when looking at JMIA stock, an investment should still be treated as a speculation. There will likely be lots of volatility.
OK then, but what are some of the key advantages for this company? What stands out? Well, let’s take a look at three.
JMIA Stock Advantages: Experience in a New Market
Jumia has an early-mover advantage in Africa. This is often critical for e-commerce platforms, as seen with operators like Amazon (NASDAQ:AMZN) in the U.S. or Alibaba (NYSE:BABA) in China.
It was in 2012 that Jeremy Hodara and Sacha Poignonnec founded Jumia (they are currently co-CEOs). They both were alums of McKinsey, which is known for rigorous analysis and research. Hodara specialized in e-commerce and Poignonnec had strong expertise in packaged goods and the retail sector.
By being early in the market, Jumia has been able to build a strong brand and distribution network. There have also been key learnings about the nuances of the markets in Africa. All in all, these advantages will allow Jumia to better take on competitors that will move into Africa in the coming years.
The Platform
The heart of Jumia is its online marketplace that covers myriad countries in Africa. There are 40 million product listings from brands like Intel (NASDAQ:INTC), Coca-Cola (NYSE:KO), HP (NYSE:HP) and Procter & Gamble (NYSE:PG). Jumia also has 6.1 million active customers and 110,000 active sellers.
Although, the payments business may be the gem. In the latest quarter, the revenues jumped by 50% and the average transaction size was over 10 EUR. Note that payments revenues are generally high margin. There is also the secular trend towards digital transactions.
It’s true that the latest earnings report for Jumia was discouraging. But it’s important to note that Africa has had a particularly tough time with the Covid-19 pandemic. Besides, Jumia has been in the process of transitioning to higher-margin products.
In the meantime, the company has been focused on streamlining its operations. Because of this, there have been nice strides in reducing the cash burn. During the past year, the company has recorded an impressive $23 million improvement in adjusted EBITDA.
Market Opportunity
When it comes to JMIA stock, the big catalyst is the massive market opportunity. The population of the African continent is 1.38 billion and there is low penetration of e-commerce and mobile payments. There are also about 17 million small-and-medium-size businesses.
OK then, so what about the infrastructure? Won’t there need to be a need for huge investments to allow for modern e-commerce?
Not necessarily. The reason is 5G, which is likely to be a game changer for Africa. Large telecom operators are rolling out the technology across the continent.
According to InvestorPlace.com’s Luke Lango: “With 5G, you don’t need big fiber optic cables; you only need a few base stations to make it work. With base stations, high-speed mobile internet connectivity is beamed to everyone across the globe … which means that 5G is highly scalable, flexible and affordable in ways that mobile-based internet infrastructure has typically not been.”
As a result, large numbers of people will have access to the kind of connectivity that will greatly drive e-commerce transactions — and greatly help to boost the growth for Jumia.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.
