Jumia Technologies AG: Breathed A New Life (NYSE:JMIA)

Investment Thesis

Jumia Technologies (NYSE:JMIA) runs an e-commerce platform in the West, North, East, South Africa, Europe, the UAE, and globally. After the initial wave of lockdowns caused by COVID-19, online shopping became a worldwide phenomenon. Due to the difficulty of reaching their clients in person, many stores found that selling online was their only option, hastening the rise of e-commerce.

Despite the growth of e-commerce sites, JMIA had a terrible year marked by huge losses and a precipitous drop in stock price. Its stock price has tumbled by 45 percent in the past 12 months. The significant cash burn and what I’d term poor management are likely to blame for the terrible results. As a result of the company’s poor showing, new leadership was installed, and the new CEO’s top priority was increasing profits. It appears he has a well-thought-out strategy to increase the company’s profits. While I have faith in the plan’s eventual success, I think it will be quite some time before the firm realizes its goal.

Cash Burn

The company’s 12-month cash burn was US$264 million in September 2022. Therefore, starting in September 2022, it had a financial runway of about 13 months. Analysts expect Jumia Technologies to achieve cash flow breakeven in three years. That means the corporation will either need to raise capital or slow its cash outflow. To show how significant this cash burn is, consider that the $264M is more than the company’s highest annual revenue since 2017, which was $179.54M in 2020.

Profitability

Its significant cash outflow has resulted in dismal profitability for the business. The company’s F-grade in profitability is based on the fact that, aside from its gross profit margin, all other profitability measures are substantially below the industry median.

When looking at the company’s substantial loss margins, it is easy to see why the new CEO has made it a top priority to turn the company around and make a profit.

Management Change: A New Dawn?

After a terrible performance, JMIA changed its top management, with Francis Dufay becoming the acting CEO. During the Q3 2022 transcript call, the new CEO emphasized profitability as a top priority and outlined detailed strategies for achieving this goal. Below is a brief biography of the new CEO before we get to the detailed plan to increase profits.

Francis Dufay: Competence and Experience

Since November 2022, Mr. Francis Dufay has been a member of the Management Board at Jumia Technologies AG and acting as its CEO since November 7, 2022. He has been CEO of Jumia Ivory Coast at Jumia Group Limited since April 2014 and was most recently EVP of Africa. Prior to joining Jumia, he worked for McKinsey & Company in Brussels, Belgium, from 2009 until 2014. During that time, he oversaw initiatives in Europe and Sub-Saharan Africa related to online shopping and retail and government and economic growth.

He has an MBA in Marketing from Northwestern University [UK] – Kellogg School of Management, a master’s in management from the Community of European Management Schools [CEMS] Masters in Management, and an MSc from HEC Paris Business School (France).

Takeaways from His Bio

Looking at his bio, a few major highlights pose optimism about his capability to turn things around. Below are my takeaway points from his bio:

• Competence: Francis is highly qualified, and I am confident he is the ideal candidate for this role due to his relevant academic qualifications in the industry in which Jumia works.
• Experience: Francis has worked in the field in various roles and locales, giving him a wealth of expertise that will serve him well in his current capacity. His exposure to other cultures also bodes well for the success of his endeavors.
• Profound familiarity with the company: He has more of a grasp on the company’s inner workings now that he has worked here for some time. He understands its institutional makeup, cultural norms, and workings. It will be easier for him to turn things around than for someone new to the firm, who would have to learn and adapt to the company’s way of doing things because he knows how the company has transitioned and evolved to where it is.

CEO’S Roadmap To Profitability

The interim CEO set forth a comprehensive strategy to improve financial performance. His strategy is outlined in the call’s transcript for the third quarter of 2022. The path to profitability encompasses usage growth, cost discipline, monetization, and the development of JumiaPay.

Francis Dufay,” Here, we will recognize the strategic levels of our path to profitability, usage growth, cost discipline, monetization and the continued development of JumiaPay, and that’s no surprise to reach profitability, we need larger scale, more revenue and a much more efficient cost structure.”

Below are more details of how each of these approaches will be undertaken.

My Opinion on the Proposed Strategy

In light of the new CEO’s strategy for turning things around, I have faith that he will succeed in turning this company around and making it profitable. However, patience is required since the strategy’s benefits won’t appear immediately. Additionally, looking at how the approach and the entire conceptual framework are designed lends credence to my assertion that the CEO understands the company and its operating environment better. The entire plan can be summarized to be eyeing efficiency and optimal resource allocation, which I believe is key to turning the company profitable.

Potential Setback To The Profitability Journey

As much as the JMIA, led by the CEO, is desperate and dedicated to making profits, one major challenge is the increasing cost of running the business. Although one way to achieve profitability is cutting costs, I remain uncertain to what extent they will accomplish that considering the high inflation, which is making operations soar. In other words, the inflationary pressure in the world economy is a major setback to their profitability objective.

Conclusion

JMIA has had a poor run of results, but the new management, led by the CEO, has breathed new life into the company. Although it will take them some time to turn things around, I am confident the profitability plan will materialize. Despite my optimism, investors should be wary of the inflationary pressure, which may greatly blow the company’s profitability dream.