Since my last article on Jumia Technologies (NYSE:JMIA) on Sept. 16, when it was at $8.29, JMIA stock closed 2020 at $40.35 per share. This is an amazing turnaround for the stock, up 4.86 times in a space of just three-plus months.
Even more amazing is the fact that Citron Research, which previously recommending selling JMIA stock, now says it is worth at least $100 per share.
Why Things Changed
So what happened with this African e-commerce stock? Well, for one, the company’s third-quarter losses fell dramatically.
For example, the company is now talking about getting to EBITDA breakeven soon in its African e-commerce sales. In addition, analysts have come out with lower loss estimates for the next two years.
Here is an example. In my previous article, I noted that analysts forecast 2021 earnings per share (EPS) of negative $2.09. Now those same analysts predict EPS losses of just $1.85 for 2021. Right now they are forecasting losses of $1.70 for 2022, but that is likely to change.
Moreover, the company said its adjusted EBITDA losses fell 50% year-over-year. In addition, its active annual customer base rose 23% year-over-year to 6.7 million.
More Sales Means More Profit
Even more important, it appears that e-commerce sales in Nigeria are really taking off. Jumia reported that it made significant progress on a path to profitability. Its total payment volume (TPV) is now up over 50% year-over-year.
Its TPV represents the gross volume of transactions on its Nigerian and other African e-commerce portals. Just like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ), Jumia earns fees as a take rate on the TPV. So you can see as the TPV grows, Jumia’s revenue from its take rate will increase. Over time this will lead to profitability and positive cash flow.
This is essentially why Citron Research changed its mind about JMIA stock in late October. They even came out with a 16-page report titled, “Jumia, the Generational Buy.”
In addition, it appears that Jumia’s cash burn is dropping. Jumia calls this its “cash utilization.” It was down 52% year-over-year to just 27.2 million EUR. That works out to about $33.3 million per quarter or $133 million on an annual run-rate basis.
Lastly, on Dec. 3, the company raised $243 million at $30.51 per share. This more or less ensures the company will have plenty of cash for the next two years if its cash burn does not improve.
A Good Case
Citron Research makes a pretty good case why its new-found “generational buy” stock, Jumia, will be the next Amazon – for Africa. And they make the case for Nigeria in particular.
For example, it is the fastest-growing e-commerce market in Africa. Part of the reason is that amazingly 40% of the population is under 14. They believe the e-commerce market will be $75 billion by 2025.
They believe the stock will more than double to $7 billion well before then. Since the market cap is $3.27 billion now, that implies JMIA stock will rise to more than $100 per share. This represents a potential gain of 2.47 times the recent price of $40.35.
What to Do With JMIA Stock
By the way, I know a little bit about Nigeria. I lived there for three years (in Kano, Nigeria) in my junior high and high school years. I even went to a boarding school in Jos, Nigeria – in the middle of the country. The country is very vibrant and large (the size of Texas). It clearly has the most literate and educated population in all of Africa. It is also one of the largest countries in terms of population.
But what I remember the most is how attuned to business the country is. My brothers and I, and some other friends, used to go to the “Saban Gari” (or “market” in the Hausa language). It was like a giant massive swap meet that was literally miles deep in several directions. Sometimes we would get lost – two American kids in this sea of business – pretty funny. In essence, I learned Nigerians really love doing business.
Now they have discovered the e-commerce Saban Gari, since they were forced to do this due to the novel coronavirus. Jumia Technologies is in the middle of picking up massive market share in this new Saban Gari. Look for JMIA stock to hit $100 in the next year or so.
On the date of publication, Mark R. Hake had a long position in Square (SQ) stock.