Jumia Technologies, the giant online retail and wholesale company also known as the “Amazon of Africa,” is currently not profitable. It does continue to grow at an exponential rate like Snap, Inc. and other American tech companies, but it remains unprofitable. Moreover, its stock price has been down -52.49% over the last 12 months. However, it seems that the company has been making some progress to boost its stock price. Indeed, its stock has gained 1.73% while the S&P500 is up 0.18%.
One thing about growth stocks like Jumia Technologies is that they grow extremely fast. And their fast-paced growth illuminates their potential in the near future. This was the case with companies like Facebook, Inc. or Amazon, Inc. which are both worth hundreds of billions of dollars, if not trillions of dollars. When they both went public, they were unprofitable but the revenues they were generating and the constant innovation they were bringing to their products justified their decision to prioritize growth over profitability. Thus, we can readily understand why investors are attracted to unprofitable companies.
Can Jumia Technologies ever become profitable? Of course. That is the goal of every company at the end of the day. It’s the very nature of “being in business.” A business cannot survive long-term without ever turning a profit. Amazon was unprofitable for a long time before finally turning a profit in 2016. So we know that Jumia can always become profitable. But the most important question is to know whether Jumia Technologies will ever become profitable. This question implies whether Jumia Technologies is on the path to profitability or not.
The good news about Jumia Technologies is that the company is currently debt-free. That means it has no liabilities that could prevent its growth. More importantly, being debt-free means that the company has a great opportunity to reduce its losses next year. When Jumia Technologies last reported its balance sheet in March 2023, it had zero debt and cash worth $205 million. In the last year, its cash burn was $194 million. That means it had a cash runway of around 13 months as of March 2023.
The bad news about Jumia Technologies is that it has an expensive based P/S ratio compared to the estimated fair P/S ratio. Indeed, its price-to-sales (P/S) ratio of 1.6 times may not look like an appealing investment opportunity when we consider close to half the companies in the Multiline Retail industry in the United States have P/S ratios below 0.8 times. The company has less than three years of cash runway based on current free cash flow, and it is not expected to become profitable over the next three years.
Jumia Technologies had made some considerable changes to put itself on a viable path to profitability. To achieve profitability, Jumia Technologies believes they need to scale the business and implement a far more efficient cost structure. This means enhancing business focus by terminating a number of non-core activities in support of unit economics; significantly reducing costs, and accelerating monetization.
The company has made some changes at the management level. Jeremy Hodara and Sacha Poignonnec stepped down from their Co-CEO roles last November. Francis Dufay and Antoine Maillet-Mezeray have been appointed as members of the company’s Management Board and Francis has been made acting CEO.
Moreover, the company has discontinued Jumia Prime. The monthly subscription program with free delivery was trialed over the past few years and management has blamed its failure on market immaturity. Jumia is also scaling back first-party grocery activity in Algeria, Ghana, Senegal, and Tunisia. This is expected to improve profitability and reduce business complexity.
The grocery vertical has a number of procurement and logistics challenges and Jumia has decided not to continue investing in countries where the grocery business is operating below the minimum viable scale. Thus, Jumia believes that the grocery vertical is able to improve market efficiency in more advanced markets. In smaller markets, it adds operational complexity without providing sufficient upside in terms of product adoption and user retention.
Reducing the burden of fulfillment expenses will be integral to Jumia achieving profitability, Management is currently trying to reduce cancellation rates, failed deliveries, and returns in support of this. The company started increasing its basket size in order to reduce the burden of fulfillment expenses.
Jumia Technologies is clearly on the path to profitability. But the company still has significant work to do to lower costs, improve efficiency and scale the business before breakeven is achieved. Structural limitations on the growth of e-commerce in Africa will likely limit Jumia’s return, even if the company does reach profitability.