The last frontier has always been a great investment premise, whether it’s the American west in the 1800s or Asia in the mid-20th century. Todays last great frontier investment opportunity is likely Africa. Although it comprises 54 countries with a variety of economic and political environments, one company may encompass the overall continental growth. Jumia Technologies (NYSE:JMIA) is often considered to be the Amazon (NASDAQ:AMZN) and PayPal (NASDAQ:PYPL) of Africa, offering a comprehensive e-commerce platform and payment system. But how does JMIA stock measure up to these titans of e-commerce?
Jumia’s opportunity set is large as Africa has a population of 1.3 billion, which includes over 500 million internet users and $4 trillion in household and business spending. Most countries around the world are showing flat to very low population growth, but Africa is expected to double its population by 2050.
Jumia currently operates in 11 countries in Africa, which encompasses 70% of Africa’s GDP and approximately 70% of the continents internet usage. Although the companies operating history was originally a 1st party seller, JMIA has transitioned to a 3rd party e-commerce model. The company now has 110,000 active sellers with approximately 48 million product listings.
Revenue Growth With Big Operating Losses
Despite that large target market, revenues are still relatively small with only 140 million EUR in revenues for 2020 and 160 million EUR in 2019. Gross margins are reasonably strong due to the 3rd party seller business model the company has move to. However, the company in definitely still in startup or build out mode with most of its businesses.
The total losses from their business sectors, such as fulfillment, and sales and advertising, exceeded gross profits, providing operating losses of 149 million EUR in 2020 and 228 million EUR in 2019. Cash flow operating losses were 98 million EUR in 2020 and 183 million EUR in 2019. The company expects losses in 2021 to be less than 2020 as they make concerted efforts to ramp up productivity and manage SG&A more efficiently.
Jumia has had some success raising capital in recent years generating 203 million EUR, 329 million EUR, and 216 million EUR in 2020, 2019 and 2018 respectively. Cash on the balance sheet as of March 31, 2021 stood at 486 EUR million after another capital raise in Q1 2021. The company has very little debt on the balance sheet.
Recent Guidance on JMIA Stock
Recent guidance given by the company is short on financial details, but big on confidence:
“We remain focused on executing across the four pillars of our strategy, driving usage in a disciplined manner, developing our payment and fintech business JumiaPay, while driving gradual monetization of our platform and cost efficiencies. Leveraging the strength of our unit economics, we intend to gradually increase Sales & Advertising as well as Technology investments to support the long-term growth of the business, while remaining committed to reducing Adjusted EBITDA loss in absolute terms in 2021 compared to 2020.
The ongoing COVID-19 pandemic as well as the ensuing macroeconomic challenges result in substantial uncertainty concerning our operating environment and financial outlook. This may be further exacerbated by instances of social protests or political disruption, as experienced in Nigeria in late 2020 and early 2021.”
Profitable growth may be hard to come by in the near-mid term as e-commerce adoption in Africa may lag the growth rates that were experienced in other developed countries. Morgan Stanley (NYSE:MS) projects declining losses until 2024 with large net losses and a cash burn in that until then. The current cash levels may sustain them until 2025, particularly if unit economics improve.
There appears to be no discernible or clear path to generate a positive return on capital anytime in the next 5 years. One could call JMIA stock a possible good fit for a 401k account type of investment. Meaning, sock it away in your retirement account and after 20 or 30 years it would likely be a great investment by 2050 as Africa doubles its population. In the meantime, JMIA remains highly speculative.
An entry point closer to its cash-per-share, a target under $10 may provide a better entry point.
On the date of publication, Tom Kerr did nothold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.