Did Jumia fail to surprise investors?

Last week, we reported that the ecommerce company, Jumia, was looking to raise around $400 million in a secondary share offer. The secondary offering was announced on March 18, when the company’s shares were trading at around $49.

Jumia has now completed the “at the market” offering of 8,962,961 American Depositary Shares. The shares were sold at an average price of $38.90 per ADS, generating aggregate gross proceeds of $348.6 million.

Proceeds, net of commissions and estimated expenses, are expected to be $341.2 million. The company  intends to use the net proceeds from this offering for general corporate purposes.

But it is only a little short of the $400 million the company could have raised if its share price held steady. One of the reasons prices fell is that shareholders do not always think secondary offerings are a good way to raise money because these offerings dilutes their shareholding.

This specific offering diluted shares by 10% and initially, investors reacted negatively to the news of the new sale, driving the company’s share price down by over 10%. Surprisingly, now that the secondary offering has now been completed, the market is reacting positively. 

Jumia shares jump on the back of completed offering

Jumia’s shares have cooled from the blistering run that saw it reach a high of $60 at the beginning of February. But this drop in temperature is not peculiar to Jumia– we’ve seen a decline in the share prices of other tech heavyweights since the middle of February.

However, the company’s fourth quarter report for 2020 provided some optimism for investors and share prices climbed 6.7%. But that didn’t hold very long and by the time Jumia’s secondary offering was announced, it seemed like the beginning of another freefall. 

But share prices have rebounded on the back of the announcement, with share prices closing at $35.53 on Tuesday, up 2%. 

Beyond the worries about share prices, Jumia says its goal is to work towards breaking even soon. Yet, the e-commerce giant is hedging its bets with secondary offerings like this so that it will have some runway in the event that it fails to reach its stated goal.

In the end, while raising $348 million at a time when some analysts insist that Jumia’s stock is overvalued is a smart move, nothing short of profitability will be the ultimate mark of success for the company.

 

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