Why Jumia Technologies Stock Plunged but Then Recovered

What happened

Shares of Jumia Technologies (NYSE: JMIA) were bouncing up and down today after the African e-commerce specialist posted its first quarterly earnings report as a publicly traded company, showing sluggish top-line growth and a widening loss despite some promising signs. Shares fell as much as 17.8% in morning trading but recovered most of those losses and were down just 3.2% as of 12:46 p.m. EDT as investors tried to make sense of the report.

So what

Jumia showed off some impressive figures as gross merchandise volume (GMV) increased 58% to 240 million euros, which drove a 102% increase in marketplace revenue to 16 million euros. However, first-party revenue fell 21% to 15.6 million euros, which was in part due to a strategic shift to focus on higher-margin third-party marketplace revenue. Therefore, overall revenue rose just 12.3% to 31.8 million euros, or $35.6 million, which was short of estimates at $39.8 million.

A Jumia delivery driver on a motorbike.

Image source: Jumia.

Active customers grew to 4.3 million from 4 million in the fourth quarter and 3 million in the quarter a year ago. On the bottom line, the company's net loss widened from 34.1 million euros to 45.8 million. Jumia did not report results on a per-share basis.

Just after the quarter ended, Jumia also entered into a partnership with Mastercard (NYSE: MA), which made a 50-million-euro private placement concurrent with the IPO, to focus on the e-commerce company's JumiaPay payment platform as well as co-branded products like credit cards.

Co-CEOs Sacha Poignonnec and Jeremy Hodara called the results "excellent" and said, "We believe that Jumia is increasingly relevant for consumers and sellers in Africa. Looking ahead, we remain focused on our core operations, driving consumer adoption and engagement on our marketplace, increasing the penetration of JumiaPay, while continuing to improve our financial profile and making a sustainable impact on the continent."

Now what

Jumia did not provide guidance in its earnings release, nor did the company respond to allegations by short-seller Citron Research just last week that accused the company of fraud. Jumia shares plunged on that news and have been particularly volatile since then after the stock surged following its IPO a month ago. Today's report gives both bulls and bears some ammunition for their arguments. The improvements in marketplace revenue and the partnership with Mastercard are promising, but the widening loss also calls for caution.

Considering that Jumia carries a lofty valuation and a lack of profitability and that it operates in a part of the world investors may be less familiar with, the stock is likely to remain volatile for some time. That uncertainty seems to explain today's erratic response to the earnings report.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool has a disclosure policy.

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