While it’s a Germany-based company, Jumia Technologies (NYSE:JMIA) specializes in African e-commerce. You might have be extremely familiar with online shopping trends in Africa, but that’s not a reason to dismiss JMIA stock.
Some folks consider Jumia to be a ground-floor investment opportunity. Perhaps its growth trajectory could someday mirror those of e-commerce powerhouses like Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA).
That might seem like a lofty goal to aspire to. Admittedly, not everyone is convinced that Jumia, and African e-commerce generally, are poised for strong growth.
All I ask is that you bring an open mind to the discussion. By expanding your geographic horizons, you might come to appreciate Jumia’s potential as a serious value builder for long-term stakeholders.
A Closer Look at JMIA Stock
But, let’s not jump the gun here. First, we’ll take a detour and examine the recent price action of JMIA stock.
It’s mind-blowing to consider that the share price was close to $3 a year ago. The onset of the novel coronavirus, and the subsequent explosion of e-commerce, helped to push the stock price much higher.
Amazingly, JMIA stock ended 2020 at around $40. Yet, that wasn’t even the end of the story. On Feb. 10, 2021, the stock rallied to a 52-week high of $69.89.
If you’ve been waiting for the share price to come down, you’re in luck. After topping out, the stock declined sharply and on the afternoon of March 8, was trading close to the $36 level.
That’s a wrap-up of the stock’s price journey, but a more fundamental question is: why should investors want to delve into African e-commerce in the first place?
An Underappreciated Opportunity
It’s easy to miss out on overseas markets when we’re heavily focused on domestic stocks. However, I would ask you to think of African e-commerce as a market that’s ripe for rapid expansion.
Writing for the United Nations, Yun Shi reported that the number of online shoppers in Africa “has been increasing by 18% annually since 2014, which is 6% higher than the world average.”
More recently, research firm Statista identified the number of online shoppers in Africa as 280 million. Also, the Statista reported that African Internet users comprised 11.5% of global Internet users.
I’m old enough to remember a time when most people in the U.S. weren’t using the Internet. Amazon’s Jeff Bezos has the vision and the foresight to imagine greater adoption of Internet use and more specifically, e-commerce in the U.S.
As I see it, Africa’s 11.5% share of global Internet users means that there’s plenty of room for growth. It’s an underappreciated opportunity that might only be recognized after the JMIA stock price is much higher in a few years.
Progress Towards Profitability
There’s no pretending that Jumia will be a blockbuster success overnight. The expansion of the company, and the economic niche in which it operates, will take time and patience.
But as they say, patience pays in the markets. And indeed, Jumia’s fourth-quarter 2020 fiscal report indicates good progress.
For the fourth quarter, Jumia’s gross profit was 27.9 million euros, representing a year-over-year increase of 12%.
That’s encouraging, but let’s not ignore Jumia’s progress in terms of cost cutting.
Specifically, the company’s sales and advertising segment expenses totaled 10.2 million euros for the fourth quarter. That marks a year-over-year decrease of 34%.
Not only that, but Jumia’s fourth-quarter costs in the general and administrative category, excluding share-based compensation expenses, totaled 21.8 million euros. That signified a decrease of 36% on a year-over-year basis.
With all of that in mind, Jumia is justified in claiming “Significant progress towards profitability.” If that doesn’t impress you, just remember that Amazon and Alibaba had their share of growing pains in the past.
The Bottom Line
It’s impossible to see Jumia’s future growth trajectory today, as well as that of African e-commerce overall.
However, at least we can bear witness to the progress that’s currently being made. And in response, a small position in JMIA stock is perfectly reasonable.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
