Markets

Why Jumia Technologies Stock Soared Today

What happened

Shares of Jumia Technologies (NYSE: JMIA) climbed today; the African e-commerce stock caught a tailwind as tech stocks surged broadly, though there was no specific driver for the movement. The Nasdaq Composite Index finished the day up 2.5% as investors looked ahead to earnings season; they were also hopeful that lawmakers in the U.S. and Europe will approve new coronavirus rescue packages, which would help encourage consumer spending and provide a safety net for the global economy.

Jumia shares finished the session up 22.5%.

A Jumia delivery worker on a motorbike

Image source: Jumia Technologies.

So what

Jumia has mostly missed out on the rally that has lifted global e-commerce stocks, including Amazon, MercadoLibre, Sea Limited, JD.com, and Alibaba Group Holding, though online retail has been booming across much of the world due to the impact of the coronavirus pandemic. While those stocks have surged, Jumia had been ignored until recently. Investors now seem to be turning to the African growth stock, as it does offer considerable upside potential.

Often called "the Amazon of Africa," the sprawling e-commerce operator offers services like food delivery and digital payments in addition to online retail. The stock has been a disappointment since its initial public offering last year, and discoveries of fraud in its sales ranks also soured investors on the stock. But the pandemic could be just what Jumia needs to unlock its growth potential and set the company on a path to profitability.

Investors on Twitter were looking forward to Jumia's August earnings report, bullish that a better-than-expected round of results could unleash further gains in the stock. Several analysts also raised their price target on Amazon today ahead of its earnings report next week, which may have caused investors to look more closely at Jumia.

Now what

Jumia shares fell sharply after the company's first-quarter earnings report in May, after revenue declined 7% due to supply-chain issues (especially with China), and as Jumia shifts from direct sales to a third-party-marketplace model. But the company also saw signs that consumer demand was shifting to the online channel because of the pandemic.

With China rebounding from its coronavirus lockdown in the second quarter, investors are more optimistic about Jumia's prospects, but analysts still expect revenue to fall about 21%. The company will report second-quarter earnings on Aug. 12.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon, JD.com, and Sea Limited. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Amazon, JD.com, MercadoLibre, Sea Limited, and Twitter and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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