I’ve written about Jumia (NYSE:JMIA) before where I examined the company’s disappointing short-term results. Investors get so wrapped around short-term thinking that they tend to forget the forests for the trees. JMIA stock has solid long-term potential as a proxy for the African growth story.
This is true regardless of the outcome of the company’s Q3 2021 results.
In this article, I do a deep dive into what that means.
Jumia Is a Dominant Force in African e-Commerce
Much of the world has quickly adopted the convenience of e-commerce, and this trend has accelerated even quicker due to the Covid-19 pandemic. This industry tends to be a “winner take most” market due to the huge economies of scale and network effects such a platform may have. In the US, we continue to see Amazon (NASDAQ:AMZN) leverage its bread and butter e-commerce businesses to move into other verticals such as logistics and healthcare among many others. In fact, many of Amazon’s other businesses like AWS and its growing logistics business would not have been possible without its dominance in e-commerce.
Jumia has the chance to do the same for the African market. Its parent company, Rocket Internet, owns two of the top five largest e-commerce platforms in the continent. Jumia has about 10 million more monthly visitors than its closest competitor. Nigeria and South Africa currently represent the bulk of the company’s visitors. However, it has a presence in other regions as well.
The main challenge facing the company’s medium-term prospects is the lack of infrastructure in the African market. Jumia is addressing this gap with its logistics and financial services businesses.
Other companies are getting in on the act as well. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) recently announced a $1 billion investment in Africa over the next five years. The investments will be made to increase internet penetration and make it more affordable. That increase in internet penetration and infrastructure will benefit companies like Jumia which already has a strong existing presence in the market.
Jumia Growth to Return Post Pandemic
Having a dominant presence in the African market means that Jumia is poised to grow rapidly as the continent develops. The stats on the continent indicate a lot of runway for growth. Africa has favorable demographics, as nearly half of the population is under 18. However, less than a third of the continent is connected to the internet indicating a largely untapped market.
The largest markets in the continent still have relatively low internet penetration. Of the regions, only South Africa had an internet penetration of more than half the population at 56% penetration. Nigeria, which is the largest market, only has an internet penetration of 46% while Kenya’s was at 31%.
The Covid-19 pandemic both hurt and helped Jumia. Revenue growth was muted as Africa was one of the worst-hit and slowest to recover areas in the world. Consumers in the region drastically cut back on discretionary spending during this time. The company was able to pivot towards groceries, food, and other essential items. This shift in revenue mix has hurt revenues in the short term. But the new verticals should improve the top-line once things return to normal.
During the last five years, from 2015 to 2020, the African e-commerce market grew at a compound annual growth rate (CAGR) of around 40%. Many analysts believe that it will continue on this growth path post-pandemic. Jumia should return to around these growth rates in the near future.
The Takeaway for JMIA Stock
Jumia’s problems are short and medium in nature as the pandemic slowly recedes and internet infrastructure improves. So regardless of where it drops to right now in the short-term, there is long-term potential here for this stock.
Thus, there is a good chance for JMIA stock to rally once again as a Covid recovery plays out on the African continent.
On the date of publication, Joseph Nograles 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.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.
