Jumia short-selling attack risks damaging African investment prospects

By David Whitehouse
Posted on Monday, 13 May 2019 15:36

People work on computers at the online store Jumia in Ikeja district, in Nigeria's commercial capital Lagos June 10, 2016.REUTERS/Akintunde Akinleye

Jumia shares have been taking a pounding in New York since a report from short-seller Citron Research alleging that the stock is worthless.

In the wake of the report, a slew of American law firms said they were investigating possible disclosure violations and invited investors who may have lost money on the stock to contact them. In response, Jumia brought forward its first-quarter earnings announcement that was scheduled for Thursday to today.

  • That release showed that Jumia’s first-quarter loss widened from a year earlier to $51m, and gave no indication of when it might become profitable.

Citron Research is a short seller and so has a vested interest in driving down the shares of the companies it targets. Short sellers argue that their activity serves a wider purpose in alerting markets to overvalued or dishonest companies. Like all short sellers, Andrew Left, the author of the report which claims that Jumia stock is worthless, is not always right.

  • But whereas an investor who buys shares can do no worse than lose all their money, a short seller who gets it wrong faces unlimited losses if the shares keep rising.

Jumia said on today’s call said that it “completely stands by its prospectus.”  

Citron claimed that Jumia removed from its IPO documentation the fact that 41% of orders were returned, not delivered, or cancelled, and pointed to Jumia’s acknowledgment of the possibility of fraud among its Nigerian salesforce.

Jumia said on today’s call that its sales agents get commissions only after cancellations and returns are taken into account.

Jumia CEO Sacha Poignonnec said the company doesn’t plan to publish a rebuttal of Citron’s claims, but said he was willing to take questions about the report – though he did not do so on the call.

The dangers that Jumia poses for African companies seeking investment are clear in Citron’s report, which says that not even a “Nigerian Prince” would be able to cover up what Jumia has been trying to hide.

  • Words matter, and that’s a stereotype which markets may seize on and use as shorthand for “avoid African investments.” MTN is planning to list its operations in Nigeria and Airtel Africa may start trading in London in June.


The Africa Report in April argued that the private valuation of rival e-commerce platform Konga, which in 2018 was sold for, at best, a small fraction of Jumia’s stock market capitalisation , was a realistic guide to Jumia’s value. Jumia stock remains above its IPO price, and none of the allegations made against it by Citron have been independently proved.

  • “Each prospective IPO should be judged on its own merits and that shouldn’t change just because Jumia is an Africa-focused company,”says Andrew Sekandi, Africa investment consultant at Alpha Sierra in London. The allegations “may scare off some of the ‘tourists’ in the Africa investment space”, but not experienced investors, he says.

Sekandi points out that there are dozens of publicly traded African stocks in New York and London alone, so to use Jumia as a “litmus test” for the entire continent would be “overreaching.”

Rebecca Enonchong, founder and CEO of AppsTech, is less sanguine.

  • She stresses that Jumia has its headquarters in Dubai, and argues that it can’t be considered as a genuinely African company. “If we don’t correct the notion that Jumia is an African startup and distance ourselves from them, it will hurt very badly,” she says.
  • Enonchong argues that one reason for the Jumia IPO was that German e-commerce investor Rocket Internet needed to find an exit from the loss-making company. “Even if people end up realizing it was a Rocket problem and not an African one, we will still be tainted.”

Bottom Line: Failure to provide a detailed rebuttal of Citron’s claims will do little to reassure Jumia’s investors, who deserve to hear management’s side of the story. Other African companies may end up paying the penalty.

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