The German technology investment group, Rocket Internet, has sold off its shareholding of the largest eCommerce firm in Africa JUMIA. Being one of the main investor with a share holding of 11%, this move has given its other investors pause for concern.
CultureBanx noted that Mastercard initially invested $56 million in Jumia’s private stock sale ahead of the IPO, which is now only worth around $5.2 million. Not to mention Citron Research called out the company during its first post-IPO earnings report in 2019, with claims of fraud and “material discrepancies” in its S1 filing. Just a few months later Jumia disclosed it had wrongly inflated its order volume by around $17.5 million due to some fraudulent orders, even though executives stated they had no impact on financial statements.
As of 2019, with a 40% stake, MTN was the company’s largest shareholder. Jumia’s initial public offering (IPO) in 2019 appeared to be a good exit plan for MTN and other pre-IPO investors like Rocket Internet and MasterCard amidst losses being recorded by the eCommerce giants. Usually, an IPO exit can place after a share lockdown period of six months.
However, what seemed like a good plan might have hit a few roadblocks given Jumia’s repeated losses, and its dismal showing on the New York stock exchange (NYSE)
Though Jumia listed on the NYSE to resounding success, a Citron research by short-seller, Andrew Left, sent its shares tumbling down and it has continued to go downhill since then.
The e-commerce giant has told investors it has a target of attaining profitability by 2022, which now seems completely out of reach. In Q4 2019, the company lost $66 million, bringing its total operating loss for that year up to $247 million. Investor appetite remains questionable considering the company’s persistent financial losses in its core markets. Jumia has seen its stock price decline steeply down more than 85%.
It wasn’t always gloom and doom for Africa’s former unicorn.There were some things working in Jumia’s favor, as it raised $196 million through its IPO, and on the initial opening day of trading it closed up 75%. Also, the company counted more than 81,000 active merchants and over 4 million active consumers in 2019.
Jumia’s struggles across African markets on the path to profitability haven’t gone unnoticed, primarily because building an e-commerce operation at scale in countries with less developed logistics and transport infrastructure is hard and expensive. African countries are highly fragmented and have underdeveloped digital payments capabilities. Additionally, many African countries have high import tariffs with a limited ability for locally sourced products, which increases the cost of running an e-commerce business. They’ve since shuttered operations in Rwanda, Tanzania and Cameroon in the last six months.
