The Jumia Problem

Jumia, often hailed as the “Amazon of Africa,” have cast a rather sobering light on its trajectory. In the spotlight of Q2’s financial results, the once-promising unicorn seems to be grappling with some formidable challenges that have the potential to rewrite the story of one of Africa’s most buzzworthy startups.

Let’s start with the numbers. It’s no secret that revenue has taken a considerable hit, plummeting by 15.4% – a rather daunting figure to reckon with. And if that wasn’t enough, an operating loss of $23 million adds to the equation. It’s like watching a football team struggle both to score goals and to protect their own net.

Now, Jumia’s dance with losses isn’t new; it’s been a recurring theme. What used to cushion the fall in the past was the captivating tale of African growth. I mean, in their 2019 IPO prospectus, the word “growth” was practically peppered all over the pages, appearing more than a hundred times! That’s some serious optimism right there.

Fast forward to today, and that growth narrative seems to have hit a snag. The silver lining, if you can call it that, is that Jumia is hemorrhaging less money than before. But here’s the kicker – this improvement is fueled primarily by some downright ruthless cost-cutting maneuvers. We’re talking about expenses slashed by a jaw-dropping 47%! 🤯

Yet, lurking in the shadows of these financial woes lies a more intricate conundrum – the cash challenge. As of now, Jumia has about $166 million in cash reserves. Crunching the numbers with the current Q2 cash usage rate of $38 million, this war chest would sustain them for around 13 months. Not a death knell by itself (Jumia’s been in tight spots before), but there’s a crucial game-changer this time – the stock price.

Casting an eye back to 2020, when cash was tight, Jumia’s salvation came from their soaring stock. They rolled out shares and managed to rake in a whopping $231 million at a share price of $30.51. Lightning struck twice as they repeated the feat in 2021, this time amassing a cool $341 million at $38.90 per share. All told, they hauled in a jaw-dropping $571 million in just a matter of months, all thanks to their soaring stock.

However, today’s scene is a stark contrast. Their stock value has nosedived from $38.90 to a mere $3.05 (that’s a heart-stopping 90% plummet). Those same shares that brought in the riches before would now gather a mere pittance – less than $57 million, barely enough to last half a year. Plus, for investors who once saw potential in the stock, losses have been substantial, dampening their enthusiasm.

Could Jumia potentially turn to debt financing? The narrative isn’t too encouraging there either, with a history of losses and negative cash flows hanging over their prospects like a shadow.

So, what’s left on the table for Jumia? It’s a precarious situation. They’re in survival mode, trimming costs like there’s no tomorrow. They’ve wielded the axe with remarkable vigour, slashing Sales and advertising expenses by an astounding 74% compared to the previous year. In fact, they’ve even reshaped their EBITDA guidance, signalling an intent to save an additional ~$10 million more than initially planned.

It’s an interesting move, perhaps aimed at showcasing a glimmer of progress amidst the sea of bleak headlines. But, here’s the kicker – as I mentioned before, cost-cutting only takes you so far. Ultimately, the core business challenges must be addressed, much like what I discussed in another thread earlier this week.

In the grand scheme of things, Jumia finds itself in a perplexing puzzle, one that’s woven with both challenges and potential strategies. The next chapters in this saga will be truly telling as they navigate through these uncharted waters.