Jumia: Staking the present for future gains
The Jumia Group, on Tuesday, 25 February 2020, released its 2019 Quarter 4 (Q4)/Full Year Report. Except for the Gross Profit after Fulfilment Expense index which a layman could say was a meager €1million, considering that this is actually a unicorn company i.e. a private start-up company valued at over $1 billion, all the other financial indices therein contained in the report were not only good but very promising and reassuring. Unfortunately, profit is where many people, especially the shareholders and other investors are mostly interested in while assessing whether a company is doing well or struggling. The question is, can a company outlook be promising and yet report so little in ‘gross profit’ and a net loss?
The main reason for setting up any business is to earn a profit, which in turn could form returns on investment for the investor, who must have committed part of his or her limited resources, human and material, into the business venture. The products and services that the businesses offer to their consumers are all in the effort to generate enough sales that will make for profit. In reality, however, businesses don’t always earn a profit as there could be some factors that may make their profit margin grow slim, or they put them outrightly in a loss situation.
These factors could be internal like wrong decisions on the part of the managers of the business, start-up periods when the business may be encountering the usual teething problems, or external like during a period of economic downturn, harsh regulatory and social environments, etc.
An informed look at the Jumia Q4 2019/Full Year report would reveal that the ‘operational loss’ reported in the Q4 operations of the company is not a loss in that sense of the word as it does not, in any way, point to a bad financial outing of the company for the period under review. Being a start-up business that is yet to get to a break-even point due to the initial huge capital investment that is needed at this setup stage for the necessary operational infrastructure and other marketing initiatives, highly skilled personnel, etc, the ‘loss’ as seen in the report is normal and expected.
A look at the just-released report shows an average improvement of 64 percent in the Marketplace revenue breakdown across the various revenue streams over the same period the previous year. The report also shows robust growth drivers for the period under review. The Gross Merchandise Value (GMV), a major measure of growth in the e-commerce business that indicates the total volume of sales made by the e-commerce companies, dropped from 311 in Q4 2018 to 301.2 in Q4 2019 a meager three percent decrease over the last one year. The annual active customers on the Jumia platform rose from 4.0 million a year ago to 6.1 million, a 54 percent increase, while the number of orders rose from 5.5 million to 8.3 million, a 49 percent increase over the same period.
Other growth indices show an impressive growth trend. The adjusted EBITDA loss decreased from €8.78 million in Q4 2018 to €6.19 million in Q4 2019 The adoption of the JumiaPay, the company’s e-payment portal also showed a significant increase. The Total Payment Volume (TPV) grew from €29.1 million to €45.6 million or 57 percent in the year under review, among other indices.
This impressive performance came as a result of the ambitious futuristic outlook of the managers of the company, whose ambition is to take the newly founded company to the height only attained by the top-of-top e-commerce companies like Alibaba, Amazon, eBay, and Mercado. These managers have chosen to sacrifice Jumia’s quick returns attainable in the short run for the prospects of much higher returns in the future. It is this ambitious disposition that is driving the speed with which Jumia is racing after these big names in the global e-commerce industry. And like these big global brands, Jumia has given a good account of itself in terms of operational efficiency, elaborate and robust technological infrastructure, a wide range of goods and services, to name but a few.
This feat is further attributable to a variety of factors, including strong marketplace growth and robust consumer acquisition and re-engagement momentum. The increases are partly as a result of the company’s continued focus on selection, price, and convenience, as it strives to be the preferred online shopping destination for consumers in Africa for all their daily needs. Throughout the year under review, the company continued to increase the assortment available on its platform and to engage with consumers through relevant local commercial campaigns such as Mobile Week, Ramadan, Anniversary and Black Friday campaigns.
Another major driver of the financial performance of Jumia is its focus on increased monetization, which in parallel with the strong increase in active consumers, marketplace revenue grew from €17.3 million to €26 million representing an increase of 50 percent in the past year. This drive towards increased monetization saw the company reap from diversified streams of revenue including commissions, fulfillment, value-added services, and marketing and advertising services.
The company continued to balance its strong desire for growth with cost discipline which has resulted in optimal cost efficiencies. In the year under review, Jumia, while delivering a strong growth of its top-line drivers of active consumers, its sales and advertising expense dropped from €11.6 million to €9.2 million or a decrease of 21 percent in the fourth quarter of 2019, reflecting the strong Jumia brand awareness and attractiveness of its platform to consumers.
Another gamechanger in Jumia’s business is the development of JumiaPay. Since the launch of JumiaPay, it has remained a key focus area of the company and it is now offered in six countries — Nigeria, Egypt, Ivory Coast, Ghana, Morocco, and Kenya. Its scope has been expanded beyond the physical goods marketplace. As of December 31, 2018, JumiaPay was only available within its physical goods marketplace. It is now also available for the company’s on-demand services like Jumia Food.
Lastly, JumiaPay’s range of financial and digital services has been expanded to offer its consumers an increasing range of relevant services every day. In Nigeria for instance, consumers can now access micro-loans offered by a local fintech start-up, alongside event tickets offered by a local event ticketing provider third parties. In Egypt, in the second quarter of 2019, Jumia started distributing services from a local deals provider allowing consumers to purchase their vouchers on the Jumia platform, using JumiaPay.
From the report released by the company, there is no gainsaying that the prospects of the company are very bright and, going by the trend, it is only a matter of a couple of years before Jumia will break even and begin on the path of net profitability.
This article appeared first on TheNation Newspaper
