The e-commerce universe is full of scintillating stories this year, including the likes of Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP). But U.S. investors shouldn’t let patriotic bias interfere with potential opportunity. Jumia (NYSE:JMIA) confirms that. All JMIA stock has done is nearly triple over the month that ended on Dec. 11 and surge 439% in 2020.
Often dubbed the “Amazon of Africa,” Jumia isn’t necessarily unique because as Alibaba Group Holding Ltd. (NYSE:BABA), JD.com, Inc. (NASDAQ:JD) and others show, there are plenty of ways for investors to tap into the emerging-markets consumer-spending and online-retail themes. Lack of originality isn’t a knock on Jumia and while the Amazon comparison may be a stretch for now, JMIA stock doesn’t need originality to become the next Amazon stock.
Jumia’s story is backed by credible fundamentals. One of the more obvious is internet penetration. Africa is home to 17% of the world’s population, but fewer than half have access to the internet. Conversely, the internet -penetration rate in the U.S. is 85.8%, up from 82.4% in 2015. As more Africans gain access to the internet, Jumia’s results should greatly improve.
Just as, if not more important, is that Jumia is cutting its advertising and marketing expenses, a move that’s paying off in terms of improving margins, gross operating profits and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). That’s because, like so many emerging growth companies, Jumia isn’t yet profitable, and Wall Street is wondering when it will enter the black.
More Positive Catalysts for JMIA Stock
While Jumia hasn’t said when it expects to be profitable, the company is making moves to expedite the process.
Co-Chief Executive Officer Sacha Poignonnec recently said in a Bloomberg interview that the company is focusing on its unit that moves goods from sellers to buyers in 11 African nations and its payments business that settles those transactions. Egypt and Nigeria, two of the continent’s largest economies, are on that list and Poignonnec points out that the logistics and payments businesses could eventually be spun off to unlock shareholder value.
“The focus is on reducing losses and controlling costs, and deciding where to allocate our resources,” Poignonnec told Bloomberg.
Adding to its focus on efficiency, Jumia recently departed a trio of smaller Africa markets, but it’s considering entering Ethiopia and has dominant market share in Egypt, Kenya, Nigeria and Uganda, among others. For example, Jumia has the largest online retail platform in Kenya.
Jumia enjoys another advantage. As in other emerging markets, there isn’t much brick-and-mortar, Western-style retail infrastructure in Africa. That’s relevant because, partly as a result of this situation, consumers on the continent are already comfortable buying products online. And as incomes and the middle class grow and as internet penetration increases in Africa, Jumia’s market share may surge.
More Reasons to Like Jumia
With 2021 right around the corner, Jumia has other positive catalysts. For starters, Alibaba and Amazon have yet to show much interest in Africa and if those companies ever change their tunes, Jumia will enjoy brand recognition and a first-mover advantage that could prove valuable in warding off competition.
Second, Jumia’s transition to a third-party marketplace should accelerate in 2021 as some of the problems with it are being resolved. The third-party marketplace could potentially be critical for JMIA stock in 2021. If the initiative is successful, it will make the “Amazon of Africa” nickname more credible.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.