Will Jumia's stock rally lead to a $4 billion valuation?
Jumia's stock has enjoyed a market rally since October 13
in partnership with FLUTTERWAVE 26.10.2020
Good morning. "The idea of investing a billion dollars before product launch is absurd" - Everyone is piling on the "I told you so" after Quibi's demise. In today's edition: -Jumia -Airtel Africa -TC Insights

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In May 2019, Andrew Left, the editor of the investment newsletter, Citron Research, and a notorious short-seller, called Jumia’s shares worthless.
His allegations of fraud against Jumia sent the company’s shares tumbling from its $14.50 IPO to a low of $3.58 in under a year. Yet in an interesting turn of events, Andrew Left is now back to buying Jumia’s shares. Left is taking a long position in Jumia and says he has a target price of $50.
  • Jumia’s IPO opens on the NYSE at $14.50 on April 12, 2019
  • Andrew Left accuses Jumia of fraud and "financial colonialism" on May 29, 2019
  • It sent Jumia’s stock price crashing and on May 4, 2020, the company’s shares were trading for $3.98, ensuring that it was no longer a unicorn
  • On July 30, 2020, Jumia briefly became a unicorn again, following a market rally that briefly saw share prices rise to $13
Whatever gains Jumia made in July were quickly wiped out when it released its Q2 earnings for 2020. Despite the fact that Jumia’s losses reduced in Q2, investors were unimpressed with a drop in the value of sales and it led to a 40% crash in Jumia’s shares. Another rally is afoot... On Friday, October 23, Jumia’s shares closed at $17.97, after a two week rally which started with Andrew Left. On October 13, Left said he had a change of heart about Jumia and that the issues of fraud he raised in 2019 had been addressed. Not only is Left now buying Jumia stock, he’s taking a long position with a target price of $50. At that target price, Jumia would be worth $4 billion. Wowza! Will Jumia shares hit $50? No one can tell you for sure, but I’m pretty sympathetic to Jumia’s efforts in the past year to get to profitability. Other people aren’t so convinced. There are still a lot of sceptics and they point out that nothing has changed about Jumia to justify the sentiments of Left or the larger market. Go Deeper: Getting sucked into Jumia’s stock market rally is a recipe for pain.

Airtel Africa has released its half year results for 2020 showing impressive growth across the business.
  • Customer base grew 12% to 116.4 million
  • Operating profit increased by 19.5% to $472m
  • Profit after tax of $145m, down from $228m for the Same Period Last Year (SPLY)
Despite an increase in operating profit, Airtel Africa reported a 36.6% reduction in profit after tax from the SPLY. The reduced profit after tax is for a mix of reasons, one of which was a derivative gain of $46m for the SPLY. What jumps out from Airtel’s report? In the last few years, we’ve seen a change in Airtel Africa’s strategy. The company is diversifying its revenue mix because it believes that the future is in data. In its earnings report, the company said "data is a key pillar of the Group’s strategy" The decision to focus on data is in line with a general belief that voice revenues have peaked. Traditionally, voice revenue is the biggest mover of business for telecoms companies in Africa. For Airtel Africa, it is still a big revenue driver, contributing $972m in revenue for the half year of 2020. It’s a small increase from the SPLY where voice revenue was $954m. But there’s a big jump in data revenue. In the half year ended September 2019, Airtel Africa had data revenues of $434m. This year’s report shows data revenues of $584m, which is an increase of 33.4%. Mobile money: Another area Airtel Africa is seeing growth is in its Mobile money service. Revenue from mobile money is up 30.4%, with the service adding $181m to the company’s revenue. What regions are driving performance? Nigeria remains Airtel Africa’s biggest market, with a contribution of $718m to the Group’s revenue. The 13 other countries Airtel operates in are grouped as "East Africa" and "Francophone" Africa with contributions of $659m and $445m respectively.

A New Approach
Emily owns a duka (small shop) in Kenya. Although she sells in small quantities, restocking is not a problem for her. All she has to do is send an SMS to a provided number. A Sokowatch account manager confirms her order and assigns it to a nearby agent who delivers to her for free. Sokowatch can also predict her orders by using data from her previous orders. This means she gets her goods in a very short time, without ever having to leave her shop. This saves her the time and money she would have spent travelling to the central market to purchase directly from wholesalers.
Aside from bridging the gap between informal retailers in East Africa like Emily and FMCGs like Unilever, Sokowatch also offers credit services allowing retailers to order and receive goods on a 7-day payment term. The company is now expanding to other African regions and broadening its financial services on the back of a $14m funding round led by Quona Capital, a US-based venture capital firm. Quona Capital has invested in 33 other growth-stage fintech companies like Sokowatch that align with their goal of serving the financially underserved. The firm’s portfolio includes South African digital lending platform, Lulalend that offers loans to SMEs too large to access microfinance and too small to secure large loans. Quona Capital aims to provide funding solutions for early or growth-stage financial technology businesses in emerging, underserved markets across Africa, Asia, and Latin America. So why does the firm focus on fintech? According to co-founder Monica Brand Engel, this decision was deliberate and well-informed. "Traditional financial services had hit a wall. We needed new approaches that balanced tech and touch in a more nuanced way so that we could achieve our goal of radically improving both access and quality of financial services to the underserved.", she said in an interview. While investing in emerging markets is doing important work it’s also risky and complicated work. How does Quona Capital manage the risk of being exposed to competition that comes from concentrating on one sector and market? The firm says it avoids this by switching up its portfolio in terms of the kind of customers they serve. This means that not all the companies it invests in exclusively serve low-income segments; some also have middle to high-income customers. But investor bets go wrong sometimes and the job of VC firms like Quona Capital is to help their portfolio companies succeed thereby increasing their survival chances.
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