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Buy Jumia Stock as It Looks to Rapidly Scale Its Platform

Jumia Technologies (NYSE:JMIA) is a critical part of the e-commerce scene in the African continent. Many had hoped it would breakthrough during the pandemic along with other e-commerce enterprises. However, the pandemic-induced tailwinds weren’t strong enough to shift customer buying habits to online modalities in Africa. Nevertheless, JMIA stock has an incredible growth runway ahead as the early signs of growth acceleration have begun to show.

Jumia (JMIA) banner at the New York Stock Exchange
Source: Christopher Penler / Shutterstock.com

JMIA stock has had it rough during the past 12 months. Returns have been negative, and the situation hasn’t changed in recent months. Naturally, the lackluster performance of its underlying business is primarily to blame for its negative growth.

Revenue growth on a year-over-year basis has been at -1.7%. Nonetheless, Jumia has tapped into only a fraction of its massive addressable market, and its efforts to scale its business will help take its business to new heights.

Scaling the Platform

In its third-quarter earnings report, Jumia talked about the next phase of business investment which involved rapidly scaling up the platform. Some of the key activities it has listed involve accelerating usage growth, developing its JumiaPay platform and chalking out a path towards profitability.

However, these plans will likely come with a massive price tag, and spending is a core element driving this phase. The company almost doubled its losses from $27 million to $52.5 million on a year-over-year basis during the quarter. Naturally, the biggest increase is attributable to the $16.7 million in advertising and sales expenses.

This spending has resulted in an encouraging 28% order growth from the prior-year period but relatively unimpressive customer growth of roughly 8%.  Additionally, gross merchandise value (GMV) grew at a much slower pace than order growth.  The sluggish GMV growth was expected, though, as Jumia encourages customers to buy small ticker, everyday products. Consequently, the average order value fell from $33.2 in the third quarter of 2020 to $28 in the latest quarter.

Nevertheless, Jumia believes the recent surge shows that its efforts to accelerate user growth are starting to bear fruit. Moreover, the management made clear it will continue to increase spending for the foreseeable future. Therefore, its bottom-line results will likely be impacted in the upcoming quarters. However, investors shouldn’t mind that at this stage, considering how Jumia is looking to scale up the platform and develop brand equity.

The Success Of Jumia Pay

Jumia Pay has been one of the brighter points for the company of late. In the third quarter, the service reported a healthy year-over-year penetration rate of 27.1%. However, its performance has been mediocre in terms of share of total orders. Therefore, the service is still a work in progress, but has plenty of potential to perform and contribute to the company’s top-line.

Furthermore, the company’s logistics segment continues to show strong upside potential. The segment posted a record-breaking total shipment of 2.9 million packages during the third quarter. The results were more than a 50% improvement on a sequential basis. Moreover, the segment reached a major milestone during the quarter where revenues from this activity blew past the $1 million mark.

Bottom Line On JMIA Stock

Jumia hasn’t had the same luck as other e-commerce stocks. That is mainly because it operates in Africa’s relatively nascent online market.

However, Jumia is investing heavily in scaling up its operations and cementing its position in the region. If it can gain significant traction in the region, it could generate massive revenues for its investors in the coming years.

Hence, I believe in the long-term case of JMIA stock despite its current troubles.

On the date of publication, Muslim Farooque 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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/12/buy-jmia-stock-as-it-looks-to-rapidly-scale-its-platform/.

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