Let’s Look At The Jumia IPO

Morning Markets: We missed an IPO filing in March, so let’s catch ourselves up.

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During the Great Lyft IPO Run, another tech shop filed to go public and we missed it. That is unacceptable, so let’s rectify the issue by taking a peek.

Jumia Technologies filed to go public in the U.S. in mid-March, filing an updated listing near the end of the month with an $8 maximum share-price target. The company is looking to raise up to a quarter billion dollars in its debut, making Jumia’s IPO a material deal.

At the upper end of its range, the firm would command a valuation of around $1.2 billion. Jumia is a unicorn. Let’s talk about it.

What’s Jumia?

Jumia calls itself the “leading pan-African e-commerce platform.” As a continent, Africa is about 24 percent larger than North America, with more than twice the people. Jumia’s market opportunity is therefore massive, and being the leading player, even in its own view, is notable.

According to its SEC filings, Jumia operates in 14 African countries today that account “for 72% of Africa’s GDP.” So while the firm isn’t operating in every country on the continent, it’s certainly working where there’s likely the highest demand for ecommcerce.

As a company, Jumia does more than just ecommerce. It operates its own online payment tech (JumiaPay), and also provides logistical services (Jumia Logistics), and even its “own last-mile fleet.”

It’s a vertically-integrated player then, providing a marketplace for goods to be sold, payment services to help those goods sell, and logistics and delivery options as well to help the goods arrive.

The Results

While Jumia has built something large and interesting, it hasn’t yet figured out how to make money. Akin to many tech, and tech-enabled companies today, Jumia loses lots of money. It has also posted material revenue growth in recent years.

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.

The Lyft argument comes into play here. Lyft has reduced its losses from a percent-of-revenue perspective over time, but it has failed to-date to lower its losses in dollar terms. Jumia has done something different, lowering its losses from 176 percent of revenue in 2017 to 130 percent in 2018. That’s the right direction, but it’s hard to chart a path to profits when you are running greater than -100 percent margins.

Jumia’s adjusted profitability metrics aren’t much better, with the firm’s adjusted EBITDA running negative 126.8 million Euro in 2017 and 150.1 million Euro in 2018.

The ecommerce group closed out 2018 with 100.6 million Euro in cash. How? By being a prodigious fundraiser. According to Crunchbase data Jumia has raised $767.7 million to-date. Notably, however, there are no known Jumia rounds since a huge capital even in 2016. That means that Jumia has likely been growing since, and now needs more money.

The firm was worth about a billion Euro at the time of that 360 million Euro investment. So, it’s shooting for an up-IPO, but admittedly one that is modest in terms of value creation since its 2016 round. Perhaps Jumia’s growth has been more expensive than expected, leading to a longer incubation period and a higher-than-anticipated set of capital needs.

Illustration: Li-Anne Dias.