It’s a risky bet to make, I’ll admit. Previously, I identified the stock as an all-or-nothing type of investment. Overall, though, I leaned bullish on the name.
Back then, I noted the following: “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.” That means there’s potentially a blue-sky opportunity with this stock.
However, recently reported fiscal results indicate a year-over-year (YOY) decline in gross market value (GMV) for the company. That’s certainly not encouraging.
So, is it time for the bulls on JMIA stock to abandon ship?
A Closer Look at JMIA Stock
In April of 2019, JMIA stock stunned the skeptics when it leaped from its initial public offering (IPO) price of $14.50 to more than $50. Evidently, some investors were fully expecting Jumia to become an African e-commerce giant.
Unfortunately, though, traders who chased after it at the $50 level were severely punished. Even prior to the onset of the novel coronavirus, the company appeared to be on a one-way trip to the $6 area.
Moreover, the pandemic has seemed to only make the situation worse. In March, shareholders stoood aghast as the share price bottomed out at a stomach-turning $2.15.
Thankfully, however, a turnaround was in the works as the investing community finally started to appreciate the significance of the worldwide e-commerce boom. By early December, the name was trading above $30. But can this confident, bullish trend continue?
Bad News, Good News
So, let’s go ahead and swallow the bitter pills about JMIA stock first. According to its recently released third-quarter results, the company’s GMV totaled 187.3 million EUR, down 28% YOY.
Moreover, Jumia suffered an adjusted EBITDA loss of 22.7 million EUR during Q3 2020. That sounds like a terrible result. But is it really?
All of these numbers should be considered in context. During the comparable quarter of 2019, Jumia’s adjusted EBITDA loss was 45.4 million EUR. Therefore, the most recently reported quarter features a roughly 50% decrease in terms of adjusted EBITDA loss.
As for the slide in its quarterly GMV, the company explains that “the effects of the business mix rebalancing initiated late last year continued playing out during the third quarter of 2020.”
I would consider that to be a temporary situation that won’t necessarily impact Jumia’s bottom line going forward.
On the Right Path
In the Q3 report, Jumia’s co-CEOs — Jeremy Hodara and Sacha Poignonnec — declared that their company is “making significant progress on our path to profitability” and has been focused on “firmly advancing towards breakeven.” I tend to believe that Jumia will achieve that goal.
Why? Because the third quarter’s rough numbers were, at least in part, due to what InvestorPlace contributor Ian Bezek characterized as an intentional slowdown and rebalancing:
“Jumia refocused its marketing spending and cut its overall outlays there dramatically. Additionally, it switched its product mix, and thus enjoyed sharply higher gross margins, even as it sold fewer goods.”
In particular, I appreciate the way JMIA reduced its expenditures. For Q3, its sales and advertising expenses totaled 6.2 million EUR. That figure represents a YOY decrease of 55%. In fact, it’s the company’s lowest quarterly expenditure on sales and advertising since 2017.
Plus, during the same quarter, Jumia “onboarded over 60 brands on the platform.” All of this indicates a reprioritization that could set JMIA stock and its stakeholders on a profoundly profitable path in the coming quarters.
Jumia’s financial stats might seem discouraging at first glance. However, a deeper dive into the numbers uncovers an encouraging fiscal picture for the company. This e-commerce play is refocusing and working towards bottom-line profitability. That’s a great sign.
On top of that, investors should appreciate the global scope of the e-commerce boom. As Africa positions itself for large-scale internet penetration, JMIA stock traders can prepare themselves for surprisingly strong returns.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content -and crossed the occasional line -on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets