Jumia Q3 2019 Result; Turning A Trading Corner, Smartly

Proshare

Thursday, November 14, 2019 /07.30PM / Teslim Shitta-Bey, Managing Editor/ Header Image Credit: Proshare

 


Jumia, Africa's largest digital retail platform, has released its Q3 2019 financial result with no awkward surprises, indeed the companies 9 months to September 2019 and Q3 2019 results have revealed opportunities in the Fintech payment space and a generic cost reduction strategy that could protect the company's key operating performance from pushing into an economic headwind going into the final quarter of the year.

 

 

Highlights

 

Income Statement


  • Gross Merchandise Value (GMV) went up +39% between Q3 2018 and Q3 2019, the rise in GMV suggests that the platforms basic retail activities have nudged forward noticeably in addition to an increase in its online payment solution

  • Annual Active Consumers for the 12-month period ending September 30, 2019 grew by +56% and number of Orders for the quarter grew by +95% on a year-on-year basis. The fact that active consumers (those that have made at least one purchase over the period) grew by over +50% Y-o-Y shows that the company has been able sustain a growth in underlying service demand, dispelling earlier concerns about the company's capacity to retain customers as a result of  alleged poor product quality and indifferent customer service delivery

  • The company's fastest growing categories on its platform in terms of items sold included:

1.   Digital Services on JumiaPay Mobile Application for payment of utility bills and airtime (payment revenue here were in triple digits)

2.     Fast Moving Consumer Goods (FMCGs) sales on the platform is a major growth source. Groceries and similar products grew by +99% over a 9-month period. Even though these consumer items involved smaller-sized individual purchase values they formed the basis of repeat patronage on a sustained basis

     

     The launch of Jumia Mall in September 2019 provided Jumia the opportunity to create e-shops on the platform for specific brands thereby improving the consumer transaction journey which should improve the company's GMV by Q4 2019


  • Total Payment Value (TPV) of the company in Q3 2019 rose to Euro 2m up by +95% from its Q3 2018 value. The number of JumiaPay transactions got to 2.1 m, up by +262% from the similar period of 2018, showing major operational growth in digital payments on the platform. In Q3 2019, about 31% of orders at Group level were settled via JumiaPay compared to 16% in 2018, probably reflecting the company's ability to leverage its marketplace flywheel to drive the adoption of JumiaPay.

  • In addition to topline growth Jumia over Q3 2019 was able to push up monetization or its ability to turn visits into cash such as through advertising revenues and commission payments. The company's gross profit number grew by +45% while its marketplace revenue went up +52% in Q3 2019 as against Q3 2018. Marketing and Advertising Commission was 8% of marketplace revenue in Q3 2019 as against 2% of market place revenue in Q3 2018. The changing composition of marketplace revenue in favour of Advertising and Marketing revenue suggests greater diversification and longer-term stability of top line future earnings.

  • Jumia Lending helped in the origination of approximately Euro 5 million worth of loans to more than 770 sellers on its platform since its launch in early 2017. The average loan amount was around Euro 3,200 for an average duration of 5 months. 

  • A slight challenge on the Income Statement side of the Q3 report was the +55.4% rise in Fulfilment Expenses indicating a significant leap in logistic costs over the one-year period between September 2018 and September 2019. Jumia's cost of distribution (including warehouses and pick up stations) rose from Euro 13.32m in Q3 2018 to Euro 20.71m in Q3 2019. The company noted that, "Fulfillment expense this quarter was impacted by a higher proportion of cross-border packages shipped from overseas sellers as well as a higher proportion of packages delivered outside primary cities".

  • In addition to logistic cost spikes, Jumia appears to have had trouble keeping General and Administrative Expenses down. G &A expenses went up by +45.6% between Q3 2018 and Q3 2019, which was indeed faster than the growth in its GMV, thus lowering the ratio of G&A-to-GMV on a year-on-year (Y-o-Y) basis (see Table 1 below).

 

 

 

Table 1 Jumia Revenue For 3 Months Ended September 30, 2018 and 2019

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Statement of Financial Position

  • The company's net current assets (an indication of working capital) went up from Euro 43.21m in December 2018 to Euro 228.63m in September 2019, a growth of +429.10%. Most of the growth was attributable to the +125.64% surge in cash and cash equivalents from Euro 100.64m in December 2018 to Euro 227.07m in September 2019. In addition, there was a Euro 64.12m investment by way of a term deposit in September 2019 as against no such investment in December 2018.  

  • Jumia's liquidity ratio shifted from a narrow 1.47 in December 2018 to 3.23 in September 2019, indicating a strengthening of the company's liquidity position and an improvement in its underlying business sustainability

  • The e-commerce platforms equity capital rose from Euro 133,000 in Q3 2018 to Euro 156.82m in Q3 2019, the improvement in equity suggests investors have put 'more skin in the game' to build confidence in the stability of operations

  • Inventories rose from Euro 9.43m in December 2018 to Euro 10.28m in September 2019, a growth of +9.01% which was understandable given the rise in GMV.

  • Analysts have, however, expressed concern about the steep rise in Jumia's fixed assets with its property and equipment rising from Euro 5.02m in December 2018 to Euro 17.46m in September 2019, representing a +247.81% increase in the company's non-trading assets. The apparent implication is that the company's breakeven margin would rise noticeably by H2 2019 as the B2C and B2B platform grapples with a lower return on average assets (ROaA) by the year-end.

 


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Priming The Profit Pump

 

Jumia is yet to make a profit from its operations on an Earnings Before Interest, Depreciation, Tax and Amortization (EBITDA) basis, but in line with proper corporate disclosure standards, Jumia has noted that its EBITDA calculations was not cast in a manner comparable to that of the International Financial Reporting Standards (IFRS), but it still gives a fair representation of the state of the company's financial affairs. Adjusted EBITDA rose from a loss of Euro 35.8m in Q3 2018 to a loss of Euro 45.4m in Q3 2019, or what amounted to an increased loss of -26.82% Y-o-Y. The companies operating loss rose by +34.6% from Euro 40.6m in Q3 2018 to Euro 54.6m in Q3 2019 (see Table 2 below).

 

The loss pattern of the online unicorn is consistent with similar early investment life cycle losses by other global digital giants such as Ali Baba, Amazon and even Google. What investors may consider critical at this point, however, is Jumia's capacity to build its GMV and TPV sustainably while it optimizes its business processes. So far, the company's business order expansion appears impressive with product order growth of +18.72% on a compound quarterly basis (see chart 1 below). 

 

 

Table 2 Jumia Gross Profit for 3 Months Ended September 2018 and 2019

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Table 3 Jumia Operating Loss and Adjusted EBITDA for 3 Months Ended September 2018 and 2019

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Chart 1 Jumia Number of Product Orders Q1 2018-Q3 2019 (m)

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Source: Jumia Q3 2019 Financial Statement, Proshare research


 

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Turning Activity Into Cash Flow

 

Crucial to Jumia's operations are its business activity numbers which, so far, have mostly headed in the right direction. Marketplace Revenue, for example, rose from Euro 12.5m in Q3 2018 to Euro 18.9m in Q3 2019, representing a growth of +52.1%. Commissions rose from Euro 4.2m in Q3 2018 to Euro 5.3m in Q3 2019, reflecting a leap of +27.5%, while Value Added Services went up by +32.9% from Euro 3.6m in Q3 2018 to Euro 4.7m in Q3 2019. The less desired changes, however, included fulfillment costs which rose +55.48% between Q3 2018 and Q3 2019, rising from Euro 13.32m to Euro 20.71m. General and Administrative (G&A) expenses also appeared troublesome rising from Euro 22.46m in Q3 2018 to Euro 32.66m in Q3 2019 or a rise of +45.40%. However, other operation income rose from Euro 333,000 in Q3 2018 to Euro 714,000 in Q3 2019, the absolute value of income may not have been seen as large but the direction of growth of +114.41% was indicative of major improvement. Jumia's stronger operating performance shows up in its stronger cash position in the third quarter of 2019. The Groups cash and cash equivalents rose from Euro 100.64m in Q3 2018 to Euro 227.07m in Q3 2019, a growth of +125.64%.

 

The modest Euro 1m rise in trade receivables between Q3 2018 and Q3 2019 pointed to a greater amount of efficiency in the management of trade debtors, trade receivables rose by a modest +7.45% from Euro 13.03m in Q3 2018 to Euro 14.00m in Q3 2019.

 

Jumia has engaged in large investments in warehouses, pickup points and other logistic support infrastructure in the course of the first 9 months of 2019 and this has shown up in the leap in the company's investing cash flow which rose from minus Euro 2.68m in the first 9 months of 2018 to minus Euro 65.77m in first 9 months of the contemporary period of 2019, Jumia's need for further capital investment in the business is understandable, but analysts have expressed concerns over the rapid growth of fixed assets at a relatively early stage of the e-Business's evolution. Amazon stayed out of warehouse acquisition for several years before piling up heavy costs in fixed assets. Indeed, the jury is still out on whether Amazon's acquisition of large-budget fixed asset facilities in recent years would thin down equity returns and the former exclusively book-selling platform's market value. Jumia may need to slow down fixed asset acquisition to protect business margins.

 

 

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The Liquidity Bulge

 

The saying that cash is king bears relevance to Jumia's Q3 and 9 months 2019 result as the company has evidently bulked up the size of cash in the business. Cash and cash equivalents rose from Euro 42.23m in Q3 2018 to Euro 227.07m in Q3 2019, the rise in the business's cash position may be seen as desirable from a liquidity standpoint but it could also be interpreted as leaving idle investible cash balances on the table. Investors would perhaps wait till the end of H2 2019 to see what the company did with its rising cash hoard.

 

 

A look At Debt

 

The continental e-commerce giant has a debt-to-equity position that is consistent with its growth aspirations and business lifecycle. The company as at September 2019 had current borrowing of Euro 3.64m which was not in existence as at December 2018. The company also had non-current borrowings outstanding of Euro 6.62m as at September 2019, bringing total borrowings to Euro 10.26m as at September this year. The proportion of debt as a per cent of borrowings as at September 2019 was 4.26%. The company's total assets- to-equity ratio in September 2019 was 1.42, suggesting that the company had 42% more assets than equity or what comes to a liability excluding equity of 48%, a financial statement position that is promising and supportive of fiscal stability if properly leveraged.   

 


JUMIA Q3 2019; A SWOT Analysis

 

Jumia has shown resilience in the face of a variety of emerging challenges across African economies and within domestic local African markets, these developments have led to peculiar strategic concerns for digital retail platforms as highlighted in Jumia's September 2019 SWOT Analysis (see illustration 1 below).

 

Strengths

 

The company's topline earning numbers have grown steadily and is likely to continue to scale up into 2020 and 2021 based on Proshare's linear two-year GMV forecast.

 

 

Weaknesses

 

The company's various expense heads such as G&A and have been rising and may need to be tamed to augment the growth in TPV and GMV.

 

 

Opportunities

 

The rising penetration of data by Nigerian users of telecommunication services, may lead to a surge in online digital commerce. Admittedly, however, only about 30% of revenues by Nigerian Telcos presently come from there data business, suggesting that if data penetration rates increase (given the sizable headroom that presently exists), digital natives are likely to increase spending and improve Jumia's share-of-wallet income. Furthermore, Jumia's JumiaPay service for small-scale borrowing activities should give a boost to digital purchases at relatively low default risks and push GMV and marketplace revenues up.

 

 

Threats

 

An intensification of trade conflict between China and America and increased uncertainty in the economic progress of Europe could lead to a slowing of the global economy and a reduction in consumer spending on the African continent. In addition, an increasingly insular Federal Government of Nigeria (FGN) trade stance in 2019 could slow down online digital transactions.

 

 

Illustration 1 Jumia 9 Months 2019 SWOT Analysis

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Back of The Envelop


Jumia has had to deal with unique challenges that characterize creating a unique and sustainable digital customer journey in an emerging African digital market such as Nigeria, this has involved cost over runs, human resource oversight challenges and escalation of logistic costs, but these experiences should provide Jumia with a learning opportunity and a corporate governance moment designed to improve the digital retail journey of consumers across continental markets (see illustration 2 below, "Jumia's Four Bar Strategy 2019-2022").



Illustration 2  Jumia's Four Bar Strategy 2019-2022                                                     

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 The stock's price has been bearish for most of the year as it fell to a recent market price of US$ 5.52 (Thursday November 14, 2019) down from US$43.33 at the beginning of May 2019 (see chart 2 below). The recent 9 months 2019 result of the company's performance may begin to see equity traders reignite interest in Africa's premier digital marketplace as it grows its digital footprint, especially in Nigeria.



Chart 2 JUMIA Market Price and Volume Movement May-November 2019

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Source: Yahoo! Finance



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Related News on IPO

1.       MTN Plans Sale of Jumia Stake After Agreed Lock-In - May 01, 2019

2.      Jumia Becomes First African Start-up To List On NYSE; Raises $200m On Day 1, Now Valued At $1.5bn - Apr 12, 2019

3.      Jumia: African E-Commerce Platform Files For An Estimated $500m US IPO, Plans To List On The NYSE - Mar 13, 2019

4.      Seven Of The 10 Largest Technology IPOs By Proceeds Raised Were Listed On Nasdaq In 2018 - Dec 26, 2018

 

 

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Related News 0n Financial Performance

5.      JUMIA Q2 2019 Result;Strong Growth of Topline Drivers As Gross Profit Increases By 94%   - August 22, 2019

6.      JUMIA's IPO and Q1 2019 Result; Understanding The Numbers and Ignoring the 'Noise- May 17, 2019

7.       JUMIA Q1 2019 Conference Call; Take Aways As Firm Responds to CITRON, Citi Bank Research Report -  May 14, 2019

8.      Jumia - Q1 2019 Result Presentation - May 14, 2019

9.      Jumia Releases 2017 Financial Result; Highlights -  Apr 18, 2018

 

Analyst(s) Comments Post Listing

10.   Not All IPOs are Created Equal. Jumia is a Fraud ... - Citron Research - May 09 2019

11.    Citi Group report contradicts Citron's fraud allegations against Jumia ... May 13, 2019

 

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Related News on General Business

12.   Singapore Govt Invites Jumia CEO to Speak on Digital Economy and Consumerism in Africa - Aug 08, 2018

13.   Jumia Travel launches a new feature to scale Facebook Messenger as a CS channel - Jul 20, 2017

14.   Hospitality and Tourism Sector contributed 4.8% to Nigeria's GDP in 2016-Jumia Travel - Jan 31, 2017

15.   Investing in the Future of Nigeria with an Online Sales Platform - Sep 18, 2018

16.   Blockchain Platform Prepares To Test Cryptocurrency Payment System In Major Shopping Mall - Apr 18, 2018

17.   Dream Merchants In Uncertain Times - Mar 07, 2018

18.   Interested In Angel Investing? - Webinar For Nov 15, 2018 - Nov 09, 2018

19.   Local Venture Capital Fund Formation Is On The Rise In Africa, Led By Nigeria

20.  SoftBank Is Taking Over Tech - Oct 30, 2018

21.   Nigeria to Sign MOU with China on $328m Funding of NICTIB Phase II - Sep 02, 2018

22.  Fmr SEC and FDIC Chairs Join Advisory Board Of Omniex, A Crypto Investment and Trading Platform - Aug 07, 2018

23.  Nigeria's tourism & hospitality industry may overtake the downstream sector by 2021 -Jumia Travel CM - Aug 23, 2016

 

24. JUMIA Q1 2019 Conference Call; Take Aways As Firm Responds to CITRON, Citi Bank Research Report - May 14, 2019

25.  Jumia - Q1 2019 Result Presentation May 14, 2019

26.  Jumia Releases 2017 Financial Result; Highlights - Apr 18, 2018

 

 

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Related News on General Business 

27.  Singapore Govt Invites Jumia CEO to Speak on Digital Economy and Consumerism in Africa - Aug 08, 2018

28.   Jumia Travel launches a new feature to scale Facebook Messenger as a CS channel - Jul 20, 2017

29.  Hospitality and Tourism Sector contributed 4.8% to Nigeria's GDP in 2016-Jumia Travel - Jan 31, 2017

30.  Investing in the Future of Nigeria with an Online Sales Platform - Sep 18, 2018

31.  Blockchain Platform Prepares To Test Cryptocurrency Payment System In Major Shopping Mall - Apr 18, 2018

32.  Dream Merchants In Uncertain Times - Mar 07, 2018

33.  Interested In Angel Investing? - Webinar For Nov 15, 2018 - Nov 09, 2018

34.   Local Venture Capital Fund Formation Is On The Rise In Africa, Led By Nigeria

35.  SoftBank Is Taking Over Tech - Oct 30, 2018

36.  Nigeria to Sign MOU with China on $328m Funding of NICTIB Phase II - Sep 02, 2018

37.  Fmr SEC and FDIC Chairs Join Advisory Board Of Omniex, A Crypto Investment and Trading Platform - Aug 07, 2018

38.   Nigeria's tourism & hospitality industry may overtake the downstream sector by 2021 -Jumia Travel CM - Aug 23, 2016

 

 

Proshare Nigeria Pvt. Ltd.


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