Do You Have JMIA Stock On Your List Of Top E-Commerce Stocks To Watch This Year?
Jumia Technologies (NASDAQ: JMIA) may not be a household name. But its returns in 2020 were way more rewarding than big names like Amazon.com (NASDAQ: AMZN) or Alibaba (NYSE: BABA). There has been increasing speculation that the African tech company could eventually become the next Amazon. With its high prospects of economic growth and tech penetration going on in the country, it sure sounds like a steal. After all, many investors are looking for the next big thing to put their money in.
Of course, it’s debatable whether it will live up to the achievements of its counterparts in the U.S. or China. Many are betting that Jumia has the first-mover advantage in emerging economies in Africa. However, with COVID-19 pretty much continuing to negatively affect our economies, things may prove challenging. Perhaps, one needs some real patience to see Jumia growing into an e-commerce powerhouse.
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First Mover Advantage In Emerging Economies Could Reap Significant Value
According to a report by McKinsey & Company, the fast-growing continent’s e-commerce sales could hit $75 billion per year by 2025. With Africa’s surging population and untapped economic potential, all these could bode well for Jumia. Sure, it’s not going to be easy and it is going to take years for Jumia’s growth story to play out. After a massive run in the second half of 2020, you could argue that JMIA stock is currently priced to perfection.
You see, Jumia isn’t currently unprofitable because of poor management nor low consumer interest in Africa. Rather, it was rather the infrastructure problem that gets in their way of growth. In other words, many countries in the region do not necessarily have the infrastructure to bring the company to greater heights. In the third-quarter report, the company said that the rate of cancellations failed deliveries and returns were 23% of the gross merchandise value. Certainly, that sounds like a high number to most of us. But it was an improvement from 31% a year ago. There’s no question things will improve over time. And when that happens, chances are JMIA stock will benefit. After all, e-commerce is a global phenomenon, and an e-commerce stock in a developing continent could be even better.
The company recently opened its African logistics network to third parties in order to help add volume. This move will also help negotiate better pricing on shipping and control costs. Jumia also currently benefits from a reluctance of industry giants like Amazon and Alibaba to expand into the continent.
Will More Sales Lead To More Profit?
It’s worth pointing out that e-commerce sales in Nigeria are really taking off. While this may seem surprising to many, Jumia actually reported that it made significant progress on a path to profitability. The company saw total payment volume (TPV) increase by over 50% from a year ago. That amount includes the gross volume of transactions on its e-commerce portals.
Just like PayPal (NASDAQ: PYPL) and Square (NYSE: SQ), Jumia earns fees as a take rate on the TPV. So you can see as the TPV grows, Jumia’s revenue from its take rate will increase. Over time this will lead to profitability and positive cash flow. Even notable short-seller Citron Research reversed its views on JMIA stock in late October. While they were previously bearish, they now consider Jumia “the Generational Buy”.
From its most recent quarterly result, the company reported a gross profit of $28.14 million, a 22% increase from a year ago. The company’s JumiaPay recorded a TPV of $58.21 million. Jumia serves over 1.2 billion consumers and 17 million SMEs all across Africa. It also boasts over 1 billion visits to its virtual marketplace in 2019 alone. Furthermore, the company also has over 40 million products, restaurants, and other services listed on its platform.
Not Just An E-Commerce Company
It’s been nearly a decade since the incorporation of the e-commerce company. With its experience across African markets and growing its infrastructure, Jumia is pretty well equipped in taking the company’s growth to the next step. The company is now shifting its focus to outsourcing these solutions. After being exclusive to its marketplace vendors and users, JumiaPay and Jumia Logistics are set to be opened up to third-party e-commerce players.
The company also increasingly focused on looking beyond its e-commerce segment. On the company’s last earnings call, Antoine Maillet-Mezeray, Jumia’s chief financial officer said the company will “further diversify” its revenue streams by maximizing “untapped” monetization avenues. “Payments and logistics are historically the core infrastructure supporting the growth of the marketplace. However, these assets have tremendous growth potential in their own right beyond the scope of an e-commerce marketplace.”
Certainly, no other e-commerce player has the same pan-African exposure as Jumia. The company’s operations across 11 African countries could make it an attractive destination for retailers to move online. Yet, one should bear in mind that e-commerce penetration in the continent remains low. That means there is always the possibility of newer players coming up in the market.
2020 was a strong year that’s seen Jumia stock surge over 500%. It is tempting for some investors to pile in considering it has the potential to be the Amazon of Africa. But investors should also remind themselves these kinds of annual returns are atypical. That’s considering the company is still building its presence in the continent. No one can be exactly sure where the stock could head next. The stock has had a fair share of volatility.
That suggests that there could be as many bears as there are bulls in the stock market. With the company’s leadership position, JMIA stock appears to be an appealing opportunity. If you are investing in it for the long term, be prepared for turbulence along the way. Perhaps, we could be seeing a multibagger in the making, as long as we keep holding.