The company aims to become the dominant online marketplace and digital payments provider for the entire African continent. That would be much the same way that Amazon dominates online retail in the U.S. and Alibaba (NYSE:BABA) leads the Chinese e-commerce marketplace.
It sounds like a tall order to dominate the African continent that spans 54 countries and has a total population of 1.3 billion people. But if the company, which is actually headquartered in Berlin, Germany, can pull it off, there’s no doubt that it would be a huge market opportunity.
Losses On Top Of Losses
Founded in 2012, Jumia Technologies remains unprofitable. On May 11, the company reported first-quarter earnings that showed losses compounding on top of losses.
Jumia’s operating loss for the quarter totaled 33.7 million euros ($41.1 million). That was better than a loss of 43.7 million euros in the first quarter of 2020, but still not great. Revenues in this year’s first quarter were 27.37 million euros, down 7% from 29.25 million euros a year earlier.
Jumia Technologies has struggled throughout the global pandemic even as the companies it aspires to become did gangbuster business with retail stores closed and consumers forced to shop online. Amazon, by comparison, reported that its first-quarter net sales surged 44% from a year-ago to $108.5 billion. It was the second consecutive quarter that Amazon sales topped $100 billion.
Jumia Technologies also remains a relatively small company with a market capitalization of only $3 billion, compared to Amazon’s current market capitalization of $1.6 trillion.
A Different Kind Of Market
To be fair, Amazon began life as a small online retailer that exclusively sold books. Jumia Technologies can certainly grow. However, there are fundamental differences between the African market that Jumia is targeting and the U.S. and Chinese markets that have fueled the growth of Amazon and Alibaba.
The biggest difference is technology. The U.S. and China are the two most technologically advanced countries in the world and their citizens are extremely tech savvy.
In Africa today, internet penetration remains spotty. While some African countries such as Kenya and Libya boast internet penetration rates greater than 80%, other nations such as Sierra Leone, Somalia, Madagascar and Eritrea have internet access rates of less than 15%. And three-quarters (75%) of all internet traffic in Africa is generated on smartphones with only 24% of the continent’s population having access to a personal computer.
Penetrating, and dominating, a continent that is lagging so far behind technologically would be a difficult task for any online retailer. The problematic technology environment explains why Amazon currently has no e-commerce offerings on the African continent.
While its e-commerce business is struggling, Jumia Technologies likes to tout the other side of its business, its digital payments and fintech operations. Specifically, the company has an app called JumiaPay which enables consumers to make secure payments on its e-commerce platform. It is similar in many respects to Alibaba’s mobile and online payment platform called Alipay. The company says that 37% of its online orders in this year’s first quarter were completed using JumiaPay, which is encouraging.
However, the company still has a long way to go to get the majority of its customers using JumiaPay, and it remains unclear what the company’s digital payment strategy is beyond the payment app. Jumia Technologies likes to bill itself as a fintech company, but it has not shown an indications of growing in the area beyond getting people to use JumiaPay to shop online.
Some analysts have suggested that Jumia might benefit from spinning off its digital payments business and focusing on its e-commerce strategy, and management has acknowledged that this might be a good idea, though no divestment has happened yet.
Keep An Eye On JMIA Stock
While there are people who think that Jumia Technologies is the next great e-commerce company and see dollar signs when they look at the massive market opportunity in Africa, it is too early to know if this fledgling firm will ever succeed.
Right now, Jumia Technologies is a profitless company that is trying to dominate one of the poorest and least technologically advanced regions of the world. The disheartening situation is reflected in JMIA stock, which is down 54% year-to-date. Since February, the share price has fallen from a peak of nearly $70 to $31.80.
There are so many great e-commerce companies for people to invest in right now. Beyond Amazon and Alibaba, there is also eBay (NASDAQ:EBAY), Shopify (NYSE:SHOP) and PayPal (NASDAQ:PYPL), to name only a couple. With so many strong players in the e-commerce space, it doesn’t make sense to risk your hard earned money on Jumia Technologies.
It’s an interesting story and worth watching, but it’s not worth betting money on Jumia Technologies at this point. JMIA stock gets a pass.
On the date of publication, Joel Baglole held a long position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.