Is Jumia Technologies Stock a Buy Now?
Jumia Technologies (NYSE: JMIA), the German company that operates one of Africa's leading e-commerce marketplaces, posted a mixed fourth-quarter earnings report on Feb. 23.
Jumia's revenue rose 26% year over year to $62.0 million, which marked a significant acceleration from its 9% growth in the third quarter. But on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, its net loss widened from $33.8 million to $70.0 million.
Jumia's stock price briefly rallied after the report, but quickly surrendered those gains as Russia's invasion of Ukraine caused global equities to tumble. Should investors consider taking a chance on Jumia -- which has been nearly cut in half since its IPO in 2019 -- in this unpredictable market?
Image source: Getty Images.
Jumia's growth is gradually stabilizing
Jumia initially impressed investors with its robust growth in gross merchandise volume (GMV), total orders, annual active customers, and total payment volumes (TPV) on its digital payment platform JumiaPay.
But in 2020, Jumia's growth significantly decelerated. That slowdown occurred because it shut down its marketplaces in Cameroon, Tanzania, and Rwanda over the previous two years to cut costs; it expanded its third-party marketplace while downsizing its first-party marketplace, which boosted its margins while reducing its direct revenue; and it sold a higher mix of lower-margin consumer staples to attract lower-income shoppers.
As a result, Jumia failed to capitalize on the accelerated shift toward online shopping throughout the pandemic. However, its growth gradually stabilized in 2021 after it lapped those strategic changes:
|
Growth (YOY) |
FY 2019 |
FY 2020 |
FY 2021 |
|---|---|---|---|
|
GMV |
33% |
(19%) |
4% |
|
Orders |
85% |
5% |
22% |
|
Annual Active Consumers |
52% |
12% |
17% |
|
TPV |
127% |
58% |
17% |
|
Revenue |
24% |
(13%) |
12% |
Data source: Jumia. YOY = Year over year.
Jumia served 8 million annual active customers at the end of 2021. It served 3.8 million quarterly active customers in the fourth quarter, which represented 29% growth from its 3 million customers a year ago. Its total number of orders hit 34 million for the full year, which suggests each annual active customer placed approximately nine orders throughout 2021.
Those growth rates are encouraging, but Jumia still only serves a tiny sliver of Africa's 635 million internet users. It's also tiny compared to another emerging market favorite, Latin America's MercadoLibre (NASDAQ: MELI), which ended its most recent quarter with 82.2 million unique active users.
Jumia didn't provide any specific top-line guidance for 2022, but it expects a "continued year-over-year GMV growth acceleration" for the full year. Analysts expect its revenue to rise 11% to $198 million in 2022.
Jumia's stock trades at three times that estimate, which is a reasonable (but not cheap) valuation relative to its growth. By comparison, MercadoLibre -- which is expected to generate more than 30% revenue growth over the next two years -- trades at five times this year's sales.
But Jumia is still drowning in red ink
Jumia's top-line growth might be stabilizing, but its operating and adjusted EBITDA losses are still widening at an alarming rate.
|
Metrics |
FY 2020 |
FY 2021 |
|---|---|---|
|
Revenue |
$159.4 million |
$177.9 million |
|
Operating Income |
($170.3 million) |
($240.9 million) |
|
Adjusted EBITDA |
($136.3 million) |
($196.7 million) |
Data source: Jumia.
Jumia attributes those staggering losses to the ongoing expansion of its logistics network, which can be challenging in certain regions of Africa; increased marketing expenses; and investments in its digital platforms.
As a result, Jumia expects its adjusted EBITDA loss to widen again, to about $200 million to $220 million, in 2022. On the bright side, it still had $513 million in liquidity at the end of 2021, and its low debt-to-equity ratio of 0.4 suggests it can still afford to take on additional leverage as it expands.
Is it the right time to buy Jumia?
Jumia's business is stabilizing, but its mediocre growth rates and massive losses make it a risky stock to own as rising interest rates and geopolitical headwinds pummel the market. It remains a promising long-term play on an oft-overlooked geographic region, but the current market climate indicates that investors should stick with more promising tech stocks instead.
10 stocks we like better than Jumia Technologies AG-ADR
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Jumia Technologies AG-ADR wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of January 20, 2022
Leo Sun owns MercadoLibre. The Motley Fool owns and recommends Jumia Technologies AG-ADR and MercadoLibre. The Motley Fool has a disclosure policy.
