The Next Wave

The Next Wave: The curious case of Jumia

By Victor Ekwealor Nov 02, 2020

Image source: Techcabal

As I write this, the Jumia shares on my Bamboo app are a bright red signalling a downward trend. According to the app, my investments are down 16.65% in the last week, and shares are currently trading at $14.96 apiece.

This trend should not be particularly surprising as Jumia has had quite a rough year(s), but considering a recent rally that saw Jumia’s shares close at a record high of < $17, it’s worth taking a look at what the company has been up to.

There’s also the curious case of short-seller Andrew Left’s turnaround and positive outlook on Jumia’s shares.

Before we examine how healthy ‘Africa’s Amazon’ is, and make a prognosis, subscribe to this newsletter if it was shared with you, and catch up on older versions.

A costly accusation.
In early 2019, on the way to an IPO in April, Jumia began filing documents with the Securities and Exchange Commission (SEC). It was a very exciting time for everybody; an Africa-focused tech company was listing on the New York Stock Exchange (NYSE) for the first time. The much vilified ecommerce sector was being validated, and tech startups on the continent received large doses of hope.

Things were seemingly going smoothly until a
snag hit. In an updated public filing after its IPO, Jumia ‘discovered’ fraud in its systems, and the numbers were enormous. A lot of observers expressed doubt at management not being complicit.

[READ: Facing multiple lawsuits and $120 million losses, Jumia unearths fraud in earnings
report]

This was going to cause a ruckus, and it did. When it seemed like everything that could go wrong was already happening, Andrew Left of Citron Research, a US short-seller published a report calling Jumia’s share worthless and accusing the company of fraud.

A part of the report read:

“In order to raise more money from investors, Jumia inflated its active consumers and active merchants figures by 20-30% (FRAUD). The most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled. This was previously disclosed in the Company’s October 2018 confidential investor presentation. This number is so alarming that it screams fraudulent activities. Instead, Jumia disclosed that “orders accounting for 14.4% of our GMV were either failed deliveries or returned by our consumers” in 2018.”

Citron was not letting up:

“Jumia has been hiding the fraud for quite some time but going public forced their lawyers to add this language.”

Following the reveal and Andrew Left’s report, the shares took a beating down by almost 50%. Things stayed like that for a while, until recently.

An interesting pivot

In October, 5 months after that first report, Citron Report’s Andrew Left turned around to say he is going long on Jumia with a target of $50/share.

In a conversation with The Africa Report, Left said:

“I am positive on their outlook now that much of the fraud seems to be behind them.”

A rally expectedly followed this news driving the share price to a high of $17.97/share and speculations of a $4 billion valuation.

[READ: TechCabal Daily – Will Jumia’s stock rally lead to a $4 billion valuation?]

Even though it has been promising one for over two weeks now, Citron Report has not released a counter-report to explain Left’s road to Damascus. The man that drove Jumia shares down has suddenly come to its rescue; Batman-style. It is honestly, for the lack of a better qualifier, a very
convenient story.

It also does not help that at the time of that interview, the original report had been yanked off the Citron Research website, and is still not there as at press time.

I’m not sure what Jumia is up to, but let me tell you a(n), maybe, unrelated story.

The NBA
Superstar

On the hot afternoon of September 11 2019, in Lagos, I am seated across from Andre Iguodala having a discussion in front of a bunch of ecosystem people. Iguodala is an NBA basketball player of Nigeria heritage and currently plays for the Miami Heat.

You see, I almost played professional basketball myself, Iguodala is a talented and hardworking swingman that I admire, so naturally, I was awestruck. But there was no time to fanboy or talk hoops, at least not for the most part. Today, Andre is here in his
capacity as a tech investor and recent member of Jumia’s board of directors.

From how we talked about everything except how Jumia was doing, to the timing of the visit, it was obvious this tour was a publicity stunt of sorts.

At the time, Jumia vaguely said Andre will be “charged with promoting business development and technology in Africa.”

I was not sure what that meant or entailed, and I still am not. Iguodala did not appear in the Jumia spotlight after then. Again, this is a totally unrelated story.

The future is not totally bleak for the eCommerce company. From its payment play with Jumia Pay, reinvigorated logistics services, and optimisations for growth,
things are seemingly looking up.

[READ: Is Jumia still failing to surprise investors?]

But regardless of an optimistic outlook, “The COVID-19 pandemic has not created a $4bn company out of a “worthless” one.”; The Africa Report warning that getting sucked into the current Jumia rally is a recipe for pain.

In the meanwhile, while waiting for Left’s report or explanation for the new insights, fingers crossed, knocking on wood, and wishing Jumia the best.

Cameroon’s strange and short-lived phone tax
law.
In October, as part of its 2019 finance law, the government announced a 33% clearance fee on smartphones and tablets shipped in. The kicker is that this cost was meant to be directly borne by users.

This analysis provides the timeline and impacts of a strange, and now dead policy.

Two Nigerian startups make a play for the world’s largest job market. Africa’s working age population will grow by 450 million people by 2035; the largest workforce by that year. The continent will need 12 – 15 million jobs annually to match this expanding labor force.

In September, Jobberman acquired NG Careers with a focus to take on this massive opportunity. In this feature, Clemens Weitz, CEO of Ringier One Africa Media (ROAM) which owns Jobberman outlines future plans.

“In its own way,
the COVID-19 pandemic caused businesses to pivot and develop new product and service offerings which otherwise may not have been thought of and this is just the beginning for Africa’s tech scene.

The complexities we see in the transport sector in Africa are challenges that I am certain can be overcome through innovative solutions and technological offerings. With the provision of safe, reliable and convenient transport solutions for Africans (via bus hailing or logistics), life is ultimately made easier. Life has enough issues and transport should not be one of them. Ideally, in the next decade or so, the issues we see today would have been remedied through technological innovation.”

– John Enagwolor, co-founder and CEO, PlentyWaka.

Every week, we will ask our readers, stakeholders, and operators in Africa’s tech ecosystem what they think the new normal will look like, and will share their thoughts here. You can share yours with victor@bigcabal.com with ‘The Crystal Ball’ in the subject line.

Turnaround?
“I personally don’t think eCommerce as a category will be profitable in SSA as a category w/in next decade,” Olumide Olusanya said after shutting down his e-commerce company, Gloo.ng and pivoting it to a procurement service.

“The 2016 recession made it clear that the 2 biggest eCommerce players were swimming naked. Their numbers were public for all to see,” Olusanya added.

Olusanya further narrated the difficulty his team faced raising funds for his e-commerce company.

Some fundamental issues with e-commerce in Africa include the fact that the total addressable market is quite low and it’s not an essential need for many Africans who buy their groceries from neighborhood stores and open markets.

The COVID-19 lockdowns resulted in an increase in e-commerce activity as people were stuck at home. This proved to be a much-needed boost, some sort of turnaround for the sector which relies on consumer willingness to trust their platforms.

Asides more people shopping online , they appear to be spending more online. Average revenue per user has increased from about $55 in 2019 to $70 in 2020. It is expected to remain so over the next 4-5 years. For context, ARPU from 2017 – 2019 was about $50.

But it’s unclear how long the boost will last. There are concerns that consumers will return to old habits and that they will have little to spend due to the economic impact of the pandemic.

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