When you think of a regional technology boom, your mind immediately thinks about Silicon Valley. If not there, then you might consider China and its rapid push to develop electric vehicles. But African countries like Nigeria? That doesn’t usually register on the radar yet for Jumia Technologies (NYSE:JMIA), the African tech revolution is exactly what keeps hope alive for JMIA stock.
As a follower of cryptocurrency-related news, I’ve always been intrigued at how the Nigerians have really embraced virtual currencies. Enough so, in fact, that government regulators banned crypto transactions through licensed banks in the country, fearful that digital decentralized coins and tokens will compete with fiat currencies — and thereby disregard the legitimacy of a centralized authority.
Certainly, everyday Nigerians have good reason to be concerned, with the devaluation of their national currency careening out of control. Nevertheless, even these draconian crackdowns have failed to dissuade Nigerians from considering cryptos. Indeed, as Coindesk.com argues, the harsh treatment has only emboldened the citizenry. In an indirect manner, this is great news for JMIA stock.
Founded in Lagos, Nigeria, Jumia provides a pan-African e-commerce platform with a heavy presence in its home market. Further, that Nigerians specifically have embraced the digitalization of everything is pivotal to their economy. The country has a young, tech-savvy population which should help transition the broader region from a frontier market to a robust emerging one.
As well, Nigeria’s crypto integration likely has more to do as a matter of survival than a fascination of the asset class. Unless you have a stable currency, doing any kind of business — online or off — will be problematic. A national discourse on generating such stability will be most helpful to JMIA stock.
But that’s also where the problems come up.
JMIA Stock Faces Deep Infrastructural Problems
Without looking into the wider context of JMIA stock, you might view the underlying business as a once-in-a-generation opportunity. Yes, the circumstances don’t look so hot from some angles. But isn’t that the point of investing? Be greed when others are fearful and be fearful when others are greedy?
By that logic, JMIA stock is a buy. African countries in general have desirable population pyramids, with more younger people than old. Since the youth is our future, the future looks very bright indeed for Africa.
Unfortunately, Nigeria faces myriad challenges. What I had to say in April about the underlying key market for JMIA stock applies today:
But the most critical headwind affecting JMIA stock is likely the poor fundamentals and infrastructure of the African continent. Take education for example. Nigeria, one of Jumia’s key markets, has long had persistent gender inequality. Further, Voanews.com reports that the pandemic widened this inequality.
This isn’t to pick on Nigeria because many other neighboring countries experience similar inequities. As well, the United Nations reports on the challenges of attempting to close Nigeria’s extreme wealth gap. Frankly, the continent must address these gross injustices before enterprises like Jumia can become successful.
If it was just a matter of poor optics, I could perhaps let it go. But look at the financials for Jumia. In 2020, at a time when e-commerce was king, its revenue declined by over 4% from 2019’s result. Further, it’s still posting the same magnitude of net losses witnessed in the pre-pandemic years.
Contrast this to other e-commerce competitors. Sure, they may be targeting different regions and cater to specific market segments but still, ContextLogic (NASDAQ:WISH), Shopify (NYSE:SHOP) and Qurate Retail (NASDAQ:QRTEA) — which comprises brands like QVC and HSN — all posted strong sales relative to 2019.
Jumia Had the Best Opportunity
Since it’s impossible to check every single e-commerce firm’s financials, I can’t be for certain what I’m going to say next. But I truly believe it’s a rarity for an online business to post declining revenues during the pandemic-disrupted year of 2020.
You can say that the global health crisis represented the best opportunity for JMIA stock to move higher — and it did do that, let’s be fair. But currently, the air is coming out of this balloon and it’s helpful to understand why. Not only did Jumia lose sales momentum between 2019 to 2020, it’s shedding more progress this year.
On a trailing-12-month basis, Jumia’s revenue is hitting $168.7 million, nearly 2% below 2020’s sales tally. It really ought to be making progress.
Therefore, it begs the question, is there something fundamentally wrong with JMIA stock? Maybe not. Assessing the situation right now, it’s quite possible that Africa’s infrastructural challenges will stymie commercial progress, no matter what Jumia does.
I feel bad for the company because it’s doing a noble thing for the pan-African region. But you’ve got to be smart with this as an investor. If you decide to take a shot, do so with a mitigation plan.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.