E-commerce company Jumia Technologies (NYSE:JMIA) is focused on the African market. That makes it unusual among tech stocks that tend to operate primarily in North America, Europe and Asia. Africa is seen as being significantly behind these other regions in terms of technology, access to the internet — which is critical for an e-commerce company — and income.
But that also makes Jumia unique in its potential for long-term growth. Investors got a taste of that when JMIA stock rocketed around 1,500% between last May and February of this year.
However, that enthusiasm didn’t last. After reaching an all-time high of $69.89 on Feb. 10, JMIA stock slumped. It hit a low point of $17.90 last week before beginning a modest rally.
With a May 20 open of $26.15 range, should you add Jumia shares to your portfolio? As I’ll explain, it really comes down to time frame and patience. If you’re expecting four-digit percentage growth again this year, you’ll probably be disappointed. But as a long-term growth stock, Jumia has real potential.
First Quarter Results Reflect ‘Progress Toward Profitability’
On May 11, Jumia reported its first-quarter 2021 financial results. The company saw revenue decline by 5.1% year over year. The company blamed the drop on currency exchange rates, poor sales of smartphones on the platform and continued pandemic logistics disruptions.
This was offset by more positive news. Its operating loss shrunk by 18.6% YoY, while orders grew 3% (to 6.6 million). Jumia signed up more active customers — that number now stands at 6.9 million, a 6.9% YoY increase. JumiaPay processed 2.4 million transactions (up 6.7%), while total payment volume was up 20.9%.
In addition, the company says it has put together six straight quarters of positive gross profit after fulfillment expense.
Jumia’s Co-CEOs, Jeremy Hodara and Sacha Poignonnec, summed up the results and how they play into the company’s drive to becoming profitable: “Our first quarter results reflect solid progress towards profitability. The drivers remain consistent: selective and disciplined usage growth, gradual monetization and continued cost discipline.”
A Challenging (But Massive) E-Commerce Environment
Founded in 2012, Jumia is primarily an e-commerce company. It also operates related business like its JumiaPay digital payment app, and the Jumia Food food delivery service. You can learn more about the background story here, but the basic pitch is a company focused on the kinds of internet-based services that spawned tech giants in the U.S. — but focused on Africa.
That market has huge potential, and it’s still in early stages. The continent has a population of over 1.3 billion, but incomes are far lower than North America. Only 40% of Africans have internet access, and for most that is far from high-speed broadband.
But even at just 40%, that meant over 525 million African internet users in 2019 — dwarfing the 328 million in North America at that time. North American incomes and internet access are mature and showing only modest growth. African countries face many obstacles, but the room for growth is huge.
It will take time, but Jumia’s customer base is going to grow in a big way.
The Citron Report: JMIA Stock a ‘Generational Buy’
Any discussion of JMIA stock deserves a mention of short-seller Citron Research. In May 2019, JMIA stock plummeted after Citron Research accused the company of being an “obvious fraud.”
However, Citron completely reversed its course last November. A new report called Jumia a “generational buy.” Arguing that Jumia had addressed the concerns raised in 2019, Citron said that acceleration of e-commerce adoption and a “renewed focus on profitability” made Jumia a much more attractive investment. Its conclusion that JMIA stock should be worth at least $100 helped to fuel that rapid rise in JMIA shares that ended in February.
The Bottom Line on JMIA Stock
E-commerce is in its early stages in Africa, and at this point less than half of the continent’s population has internet access. However, even at that level, more people from Africa in total are accessing the internet than in North America.
The market is ripe for an e-commerce revolution, and Jumia Technologies has been at the forefront of the first wave. That puts the company in a good position to profit from the maturing of the market.
JMIA stock currently rates a ‘B’ in Portfolio Grader. You need to accept some element of risk, but the potential for long-term growth is there for the patient investor.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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