This month, African e-commerce giant Jumia released its second annual financial statements for the fourth quarter and fiscal year 2020. The results were mixed – active customers and gross margin increased, while orders and gross merchandise volume (GMV) decreased.
A peculiarity that has troubled the company since its creation in 2012 was also present, namely a persistent adjusted EBITDA and operating losses. however, these metrics have dropped year on year, and the company, in a statement, said it has demonstrated “significant progress on the path to profitability.. “
The inequality of Jumia’s business is also reflected in its share price performance over the past year.. IIn March 2020, the company hit rock bottom and traded at an all-time high of $ 2.15 after facing fraud allegations. But it hit an all-time high of $ 69.89 almost a year later in February.
With the release of its financial data, two things were at the heart of TechCrunch’s mind: What drove Jumia’s value over 3,000% last year, and the player’s endless losses. e-commerce solutions coming to an end anytime soon?
I spoke with Jeremy Hodara, co-CEO of Jumia, to get his thoughts on these two issues and the issues the company has faced in the past..
Talk about profitability with Jumia
This interview has been edited for length and clarity.
TechCrunch: This time last year Jumia was trading between $ 2 and $ 4. Now it’s between $ 40 and $ 50. What do you think was the determining factor in all of this?
Jeremy Hodara: What I think is really two things are important about rising stocks. First, in general, the world realized that there was a big paradigm shift in e-commerce and that e-commerce was the way forward for the future.. It’s something you can look at for every ecommerce business in the past 12-18 months. The second thing that has happened is that we at Jumia have been very clear about the opportunities that e-commerce represents in Africa.. E-commerce is a real problem of access to consumption and has a strong value proposition for those who necessarily don’t like physical stores in Africa.
What we never have really have proven that you can build a profitable e-commerce business. however, I think that will change soon because what we have been doing quarter after quarter is be disciplined to clarify that we are looking for a profitable business model and growth. And as people understood and saw what we were doing, it also gave them more confidence in the excitement of this opportunity.. In my opinion, what happened over the past 12 months was the combination of people understanding the importance of e-commerce around the world. Secondly, Jumia has demonstrated that it is building a sustainable and profitable business model.
Would you say Andrew Left’s reversal in October and his decision to go long on Jumia also affected the share price?
Not really. Like I said earlier, I think it was the story of e-commerce change for the future. It didn’t start in October; it started months before. Like us be disciplined quarter after quarter to build what started months before so I can’t really comment on whether their decision affected our share price or whether negative or positive feedback from an investor would alter market sentiment towards our share.
You explained how Jumia tries to build a profitable business. But how is she going to do that if the business is reporting losses quarter after quarter and year after year?
I think we are on the right track, given that our EBITDA losses decreased by 47% in the last quarter, and we will try to do so on a quarterly basis. We want to achieve this by improving business efficiency and opening up new avenues for growth.
The most exciting thing about ecommerce is that you first build large assets for your own use, but it becomes relevant to other stakeholders over time.. For us, we have an app and a website with very engaged visitors, and we are exploring the possibility of having third party advertisers placing ads on the platform..
Our logistics service is also another avenue. We build tools and technologies to equip our logistics partners and help them become more productive. This lowers our costs per delivery and is the kind of benefit that comes with scaling up. So I think there is a path to profitability by opening up the assets we have built for ourselves to benefit our ecosystem.
Jumia’s spending fell last year, but revenue also fell despite a slight increase in customer base. Aren’t these disturbing signs?
On the income side, here’s how we should look at it. When you are a marketplace, your income is the commission you make from a transaction. So if you are a seller on Jumia and you sell something that costs $ 100 and your commission is 10%, your earnings in the P&L of Jumia will be $ 10.. If I buy a product from you for $ 90 and sell it to my consumer for $ 100, I will record $ 100 as income.
It’s the financial assurance between what you call the third-party model and the proprietary model.. In the owner model, you record the value of the product as income. In the market you only save the commission. Jumia has roughly 10% of its business as a proprietary model and 90% as a market model. But that percentage has changed over time, and when it does, you can see how the income has gone down.
We therefore do not base our profitability on income. What is the right KPI for us is gross profit as it shows the monetization of Jumia. It increased quarter after quarter, this time by 12%. The growth of our active consumers of 12%, from 6.1 million in Q4 2019 to 6.8 million in Q4 2020, shows disciplined growth towards profitability.
If there is indeed a path to profitability, why did Jumia’s investors – Rocket Internet and MTN – leave the company? And does that put pressure on the company?
Oh, not at all. It has been a blessing that Jumia has been able to secure the support of the companies, and they have come a long way with us. But like any investor after six to nine years, I think it was time for them to decide to leave the company, and I will say that the company was fortunate to have them by our side from the start. Well I can’t say for them but for me I do not think so we can say that their departure after so many years is a sign of mistrust in our ability to become profitable.
One of the positive aspects of your finances was JumiaPay. Does this tie into Jumia’s journey to be profitable?
JumiaPay is an incredible opportunity for us. Once you have a great commerce platform, you have a fantastic opportunity to build a great payment solution for your consumers.. We can see that consumers are adopting it very quickly, and I think the platform also gives them access to other digital services where they top up their phones, pay their bills and get loans.. In addition, it is a great payment method for consumers who want to prepay for services. And when you pre-pay for products, you make logistics more efficient and you make more sales.
Sales reminds me of the fraud issues in 2019 when some members of the J-Force team engaged in inappropriate sales practices. What does Jumia do to avoid such situations?
It’s a lesson we’ve learned, and we’ve put in place the right compliance, the right internal control team to resolve such situations. I will say that one of the reasons we are becoming one of the most professional organizations in Africa is that we now have these systems in place..
As an African company, how does Jumia respond to concerns about diversity, especially in senior positions?
I think what really The African with Jumia is the one we serve, our African sellers, our African consumers and our African team. In Nigeria, Juliet Anammah, who was the CEO of Jumia Nigeria, is now the President of the Jumia Group. I do not know what constitutes an African or non-African company, but what I can tell you is that our team is African, our consumers are African, and we sell on the continent every day. I think this is what should make sense for our ecosystem.