JMIA represents a unique opportunity for investors, which could play in the IPO's favor. Stocks with complete exposure to the African continent are few and far between, giving JMIA a scarcity effect.
The African economy is growing quickly, too, with the IMF projecting 6% growth this year. Furthermore, Africa is experiencing strong growth in the middle class, and an increasing amount of the population is using smartphones. Smartphone penetration as a percentage of the total mobile connections in Africa (40% in 2017) is expected to increase to 77% by 2022.
Given the compelling trends in Africa, and JMIA's successful pricing for its IPO, it is possible that more IPOs from the region could emerge. However, companies there still face significant hurdles, most notably including marketing their businesses to venture capital firms. Even in the case of JMIA, the company was co-founded by two French entrepreneurs, and its corporate headquarters are based in Berlin, Germany.
There are also additional risks that investors must account for, including inadequate infrastructure and logistics systems in some African countries. Political instability and violent crime also pose dangers for potential investors.
In short, there are a mix of fundamental factors that make JMIA an interesting IPO and one to keep an eye on following its trading debut this morning on the NYSE.
JMIA's platform consists of its marketplace, which connects sellers with consumers; its logistics service, which enables the shipment and delivery of packages; and its payment service, which facilitates transactions among participants active on its platform.
The company is active in six regions in Africa, which consist of 14 countries that combine for 72% of Africa’s €2 trillion GDP and 74% of African consumer expenditure, according to the IMF and Euromonitor.
Its marketplace offers goods in a wide range of categories, such as fashion and apparel, smartphones, home and living, consumer packaged goods, beauty and perfumes, and electronics. The company also provides consumers with easy access to several services, such as food delivery, hotel and flight booking, classified advertising, and airtime recharge.
Traditionally, consumers in Africa rely on cash. To address this challenge, JMIA designed its payment service, JumiaPay, to facilitate online transactions between participants on its platform. It introduced JumiaPay in four markets, including Nigeria in 2016 and Egypt in 2018, through agreements with locally licensed sponsoring banks. In 4Q18, 54% of orders placed on its platform in Nigeria and Egypt were completed using JumiaPay.
JMIA's logistics service, Jumia Logistics, facilitates the delivery of goods. It consists of a large network of leased warehouses, pick up stations for consumers, and drop-off locations for sellers. To streamline the service, it utilizes over 100 local third-party logistics providers.
In FY18, gross merchandise volume (GMV) increased by 63.3% to €828.2 mln, mainly due to a 74.7% increase in GMV from third-party sales. All regions contributed to GMV growth, with strong contributions from West Africa and Egypt.
Gross profit increased by 62.1% to €45.7 mln, primarily due to monetization initiatives related to its value-added services. Contributions from first-party sales increased only slightly, as product mix effects led to a slight decrease in gross profit from first-party sales as a percentage of GMV. Overall, gross profit as a percentage of GMV remained nearly constant at 5.6% in 2017 and 5.5% in 2018.
Sales and advertising expense increased by 25.3% to €47.5 mln, primarily driven by an increase in marketing activity and an increase in the fees and commissions to sales consultants.
As a result of the above, operating loss widened to €169.7 mln from EUR(154.7) mln.
Key Takeaways: JMIA is a rare opportunity for investors to gain exposure to the African continent and its growing economy. It is also the largest e-commerce company in Africa, giving it the scale to capitalize on the positive economic trends there. JMIA isn't for the faint of heart, though. By their very nature, IPOs are inherently very risky. But JMIA has the added risks of operating in regions where infrastructure, technology, and logistics are lacking, and where governments may not be the most stable. With that in mind, investors should take a reasonable approach to position size.