The largest e-commerce site in Africa, Jeremy Hodara, co-CEO of Jumia, has just published its second full-year financials for Q4 and fiscal year 2020. Mixed results were obtained: while orders and gross merchandise volume (GMV) decreased, active customers and gross profit rose.
Additionally, the company’s recurrent adjusted EBITDA and operating losses—a particular issue that has plagued it since its founding in 2012—were prevalent. These KPIs did, however, decline year over year, and the business claimed in a statement that it had shown “significant progress on our path to profitability.”
The performance of Jumia’s share price during the previous year is also indicative of the unevenness of the company’s operations. After being accused of fraud in March 2020, the company reached rock bottom and traded at an all-time low of $2.15. But nearly a year later, in February of this year, it reached an all-time high of $69.89.
Two thoughts were foremost in TechCrunch’s mind following the disclosure of its financials: What caused Jumia’s worth to increase by more than 3,000% in the past year, and when will the e-commerce player’s seemingly endless losses come to an end?
I met with Jeremy Hodara, the co-CEO of Jumia, to obtain his opinions on these two topics and other problems the business has encountered in the past.
Speaking with Jumia about profitability
This conversation has been condensed and made more concise.
TechCrunch: Jumia was trading between $2 and $4 at this time last year. It is now between $40 and $50. What do you believe to be the motivating force behind this?
Jonathan Hodara There are two elements about the stock gain that I believe are particularly crucial. First, everyone realised that e-commerce had undergone a significant paradigm change and was the way of the future. You may check this for each e-commerce business during the last 12 to 18 months. The second event was that Jumia was extremely open about the prospects that e-commerce offers to Africa. E-commerce has a great value proposition for individuals in Africa who may not necessarily like brick-and-mortar retailers and is a serious access to consumption problem.
We haven’t really demonstrated that you can create a successful e-commerce firm. But I believe that will soon change because of the disciplined work we’ve done quarter after quarter to make it clear that we’re pursuing a viable business model and profitable development. Additionally, as individuals realised what we were doing and witnessed it, it increased their assurance in the thrilling nature of the offer. In my opinion, the last 12 months saw a mixture of people realizing the significance of e-commerce on a global scale. Second, Jumia provided evidence that it was developing a successful and sustainable business model.
Would you believe that Andrew Left’s change of heart in October and his choice to buy shares of Jumia long also had an impact on the share price?
Actually, no. As I mentioned previously, I believe it was related to the tale of how e-commerce would alter in the future. That didn’t begin in October; it began earlier. I also can’t really comment on whether his decision affected our share price or whether an investor’s favorable or negative comments would change market sentiment toward our company because we have been diligent quarter after quarter to construct what’s right from months before.
You mentioned Jumia’s efforts to develop a successful company. But how can it manage that if the business continues to post losses every quarter and every year?
Given that our EBITDA losses decreased by 47% last quarter, I believe we’re on the correct track, and we’ll keep working to do so. By increasing the organization’s effectiveness and creating new growth opportunities, we hope to achieve our goal.
The most fascinating aspect of e-commerce is that, although you initially develop substantial assets for your own use, they eventually become important to other stakeholders. We are considering allowing third-party advertisers to display advertisements on the platform because we have an application and website that receive a lot of active users.
Using our logistics service is an additional option. In order to equip our logistics partners and boost their productivity, we are developing technologies and tools. This lowers our costs per delivery and is an example of the advantages of scale. I believe that by making the assets we have created for ourselves available to our ecosystem, we can achieve profitability.
Despite a little growth in its customer base, Jumia’s expenses decreased last year, but its revenue also decreased. Are those not concerning signs?
Here is how we should consider the revenue side of things. The commission you receive from a transaction is how a marketplace generates revenue. As a result, if you sell anything on Jumia for $100 and get a commission of 10%, your revenue inside Jumia’s P&L will be $10. I will record $100 as the income if I purchase a product from you for $90 and sell it to my customer for $100.
That is the insurance that comes from the financial intersection of the so-called third-party and first-party models. You track the product’s worth as revenue in the first-party model. You simply record the commission at the market. Approximately 10% of Jumia’s business is based on the first-party approach, while 90% is based on the marketplace model. However, as time went on, that proportion altered, and when it did, the revenue decreased.
Our profitability is not based on revenue, thus. The gross profit, which demonstrates Jumia’s monetization, is the perfect KPI for us. It has been increasing every three months, this time by 12%. By increasing by 12% from 6.1 million in Q4 2019 to 6.8 million in Q4 2020, our active consumer base demonstrates a disciplined expansion toward profitability.
Why did Rocket Internet and MTN, two of Jumia’s investors, leave the company if there is a route to profitability? Does that put the business under any pressure?
Oh, definitely not. It was a blessing that Jumia was able to secure the backing of the businesses, and together, we have come a long way. The company was fortunate to have them on board from the start, but like any investor after six to nine years, I believe it was time for them to decide to exit the business. Well, I can’t speak for them, but speaking for myself, I don’t believe that their decision to leave after so many years is an indication that they have doubts about our ability to succeed financially.
JumiaPay was one of your financials’ benefits. Does it relate to Jumia’s quest for success?
We have a fantastic opportunity with JumiaPay. You have a terrific opportunity to create a great payments solution for your customers once you have a fantastic commerce platform. Customers are embracing it quickly, and I believe this is because the platform also allows them access to other digital services where they can top up their phones, make payments, and apply for loans. Additionally, it’s a terrific way for customers to pay in advance for services. Additionally, prepaying for goods increases sales and improves logistics.
Sales bring to mind the fraud problems that certain J-Force team members had in 2019. What steps is Jumia taking to prevent circumstances like that?
We have taken note of the lesson and have employed the proper internal control and compliance teams to deal with similar circumstances. I’ll add that the fact that we now have these mechanisms in place is one of the reasons we’re becoming into one of Africa’s most professional companies.
How is Jumia, an African business, handling diversity issues, especially at the highest levels of management?
Jumia’s African workforce, African sellers, and African customers are who I believe make the company really African. Juliet Anammah, formerly the CEO of Jumia Nigeria, is currently the chairperson of Jumia Group in Nigeria. I’m not sure what makes a company African or not, but I can tell you that our workforce is African, our customers are African, and we regularly conduct business on the continent. That is what, in my opinion, ought to make sense to our ecology.