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Jumia whips out cheque book to calm Wall Street

By Quentin Velluet
Posted on Friday, 14 August 2020 15:16

A Jumia worker tags a package at the warehouse in Lagos, Nigeria. REUTERS/Temilade Adelaja

In the United States, the pursuit of financial compensation is sometimes more important than the pursuit of truth, as proven by the settlement of several class action lawsuits that had pitted several groups of buyers against the e-commerce platform Jumia since May 2019.

With the plaintiffs alleging that the company had made “misstatements and omissions” when it reported its financial statements prior to and following its listing on the New York Stock Exchange (NYSE), Jumia’s chief executives indicated in the company’s financial results press release for the second quarter of 2020 that the dispute had been settled via a compensation pay-out of $5m to the plaintiffs.

$5m to be paid out by end-2020

“On August 11, 2020, we reached an agreement to fully resolve all of the actions, subject to standard conditions including court approval [the lawsuits were filed in the US District Court for the Southern District of New York and the New York County Supreme Court, editor’s note]. Under this agreement, in which the defendants do not admit any liability or wrongdoing, Jumia will make a settlement payment of $5 million, $1 million of which will be funded by insurance coverage,” read a statement released by Jumia. The total amount is scheduled to be paid out at the end of 2020.

READ MORE Jumia: What went wrong at ‘Africa’s First Unicorn’?

Jumia’s decision was foreseeable when taking into account the following statement the company filed with the US securities regulator, the Securities and Exchange Commission, in March 2019: “If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.”

Diverting suspicion

The decision to settle the dispute by writing a large cheque allows the company, which currently boasts 6.4 million active customers, to avoid getting embroiled in a case that could damage its brand image and investor perception of its shares. Incidentally, Jumia dodged addressing the fraud allegations it has been unable to shake off ever since Andrew Left, the controversial activist short-seller and founder of Citron Research, launched a legal offensive against the company in May 2019.

In the last few months, Jumia’s share price has rebounded on Wall Street. It was trading at around $12 per share on 12 August, the date on which results for the first half of the year were released.

READ MORE Jumia investors may regret chasing an elusive dream

In addition, analyst predictions, which indicated positive performance for the period, proved to be accurate. Although the company headed by Sacha Poignonnec and Jérémy Hodara performed worse in terms of turnover – reporting revenue of €34.9m ($41.3m) in the second quarter of 2020 compared to €38.8m for the same period last year, it managed to reduce its operating loss by more than 43% over the period to €37.6m. Its gross profit also improved; between 1 January and 30 June 2020, it was up by nearly 30% to €41.7m compared to €32.1m in 2019.

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