Africa-Focused Ecommerce Player Jumia’s IPO Takes Off

Despite hefty losses, Africa-based and focused Jumia’s ecommerce IPO was a success.

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Last week the company priced its IPO mid-range, selling 13.5 million shares at $14.50 each, the midpoint of its range. That’s worth just under $200 million. Tack on the 2,0250,000 more shares available to underwriters and the company’s possible total raise grows to $225 million.

And Jumia may raise the full 225 after its IPO was given a rapturous reception. After listing on the New York Stock Exchange, Jumia’s shares closed at $25.46, up 75.6 percent. It has risen further since.

There are two ways to read that result. The first is as a success; Jumia raised hundreds of millions of dollars, floated its shares, and managed a huge first-day gain. And you can read it as a failure; Jumia could have theoretically sold fewer shares at a higher price to raise its capital, lessening dilution of extant shareholders.

But in the IPO hierarchy of results, having a big first-day pop is better than over-pricing shares and seeing your equity quickly slip under its IPO price. So, Jumia had at least a pretty good day, even if you want to (fairly, I’d say) reckon that its IPO was underpriced.

We bring all this to you for two reasons:

• Jumia’s IPO shows that there is plenty of appetite on U.S. exchanges for high-risk shares in tech companies still losing lots of money;
• That ecommerce isn’t category non grata among public investors.

The first point is true in Jumia’s case despite being a dramatic example of the trend. As we reported when Jumia filed to go public, it has workable growth but huge losses, measured as a percent of revenue:

The numbers are simple enough. Revenue grew from 94.0 million Euro in 2017 to 130.6 million Euro in 2018. That’s 38.9 percent growth. During the same two periods, however, the firm’s “loss for the year” rose from 165.4 million Euro to 170.4 million Euro.

So, what gives? I would bet a dollar that Jumia’s status as the “Amazon of Africa” has something to do with its success in the face of such deep unprofitably. After all, Amazon famously lost money for years before becoming one of the biggest companies in the world. And as Jumia has a strong presence in Africa, a continent with around 1.2 billion people, it has huge growth potential.

Do its losses matter, then, so long as Jumia is building the continent’s future online shopping, shipping, and last-mile delivery network? Maybe not. At least that appears to be the public investors’ wager.

It’s the same bet that private-market investors made in the company to the tune of hundreds of millions of dollars. Supposedly smart money on both sides of the public-private market divide has proven more than willing to power Jumia. Now it’s up to the company to tighten up its losses and show that it can expand without the crutch of external capital.

But don’t think that we’re only judging Jumia along those lines; most unicorns going public this year are shedding cash faster than is healthy. The whole class of companies will need to curtail costs while still driving growth.

Illustration: Li-Anne Dias.