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Jumia: What Africa's Amazon tells us about the e-commerce opportunity

  • There is momentum behind EM e-commerce, and it will continue after the Covid-19 era

  • Jumia has prepared itself for the supply chain disruptions and currency impact

  • Beaten down EM e-commerce such as Jumia could ascend further if a deep-pocketed suitor comes calling

Jumia: What Africa's Amazon tells us about the e-commerce opportunity
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
7 May 2020
Published byTellimer Research

Covid-19 has hit the world economy very hard. Apart from the 260,000+ lives lost, the pavement is littered with traditional retailers going bust: JC Penny, a famous American department store chain founded in 1902, filed for bankruptcy on Monday; Neiman Marcus, founded in 1907, followed suit today; and J.Crew seems set to join them.

But the virus is a godsend for EM e-commerce players. Most notably, Jumia, Africa's answer to Amazon, has risen from its slumber. After losing over 90% of its value in the eight previous months, it rose by 54% in April. We upgraded the stock to a Buy on 24 March. 

Chart: JMIA US monthly performance (%)


Source: Bloomberg

Four key points:

1) The main driver of Jumia's upsurge is the general momentum behind EM e-commerce. Traditional stores have been out of action and Jumia has been a huge beneficiary of this in its main markets of Nigeria, Egypt and Kenya. Moreover, the company has aggressively courted higher engagement with its platform by increasing the number of its grocery providers. 

2) Jumia has been well prepared for the supply chain disruptions and currency impact of Covid-19. It has cut costs in terms of headcount and other overheads. We expect the EBITDA loss to be 31% in FY 20 and it is conceivable that that may not worsen in FY 21.

3) Beaten down EM e-commerce such as Jumia could attract attention. EM e-commerce is an alluring prospect for tech giants such as Facebook and Amazon. The latter have net cash reserves of US$54bn and US$81bn, respectively. 

Africa’s internet penetration is on an upward trajectory, driven by smartphone usage (the continent is a ‘mobile-first’ market where people typically first access the internet via their mobile devices). The Jumia brand has managed to grow in popularity over the years and is currently regarded as the largest e-retail firm in Africa.

4) EM e-commerce is on the rise, but watch out for the cash burn. In the post-Covid-19 world, the market will be far less forgiving of cash-burning e-commerce ventures. Jumia itself is on course to deplete its cash by FY 21. 

We have devised a proprietary metric – the cash sustainability index (CSI) – that rates companies on their ability to generate cash. Those at the top of the list (see Table below) are likely to have sustainable businesses as independent entities – MercadoLibre stands out on this metric. Jumia may ascend further up the ranking if a deep-pocketed suitor, like Amazon for example, comes along.

Table: Tellimer's cash sustainability index (CSI) (positive = cash-generative; negative = cash-burning)

StockIndex rating

BABA US Equity

42.2

EBAY US Equity

37.3

MELI US Equity

20.8

CTRP US Equity

17.2

AMZN US Equity

7.8

BOO LN Equity

8.1

MAN FP Equity

6.4

ASC LN Equity

5.6

SHP SJ Equity

4.3

DUST SS Equity

3.9

DPEU LN Equity

2.9

PIK SJ Equity

2.7

ZAL GR Equity

2.7

CNV FP Equity

-5.0

MMYT US Equity

-14.5

FTCH US Equity

-19.3

3690 HK Equity

-37.1

SE UA Equity

-44.5

JMIA US Equity

-74.5

Source: Tellimer Research