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Getting sucked into current Jumia rally is a recipe for pain

By David Whitehouse
Posted on Tuesday, 20 October 2020 20:02

Jumia has found it hard to implement payment in advance for its goods. REUTERS/Temilade Adelaja

Those tempted to buy into the recent recovery in shares of African e-commerce retailer Jumia are likely to be disappointed.

The stock has been climbing in New York since Andrew Left, who sold the shares short in 2019, told The Africa Report on 13 October that he has a long position. Left’s Citron Research claimed last year that management were committing fraud and that the stock was worthless. Jumia consistently denied those claims.

READ MORE Jumia short-seller Andrew Left changes mind, now buying shares

Left has yet to provide a rationale for the change of mind and his original report from 9 May 2019, has been removed from the Citron Research archive. The market hasn’t worried about that as shares in Jumia surged 15% on Friday alone. The stock is now back above its $14.50 IPO price of May 2019. Left’s $50 price target would give Jumia a market value of about $4bn.

READ MORE Jumia chief executive denies short-seller Citron’s claims of fraud

Left says that this is not the first time that he has started buying a stock that he had previously shorted. That makes sense if a stock that was overvalued falls to an attractive price. But it’s “absolutely not common practice” to buy a stock after claiming it was a fraud, says Max Galland, a former trader with Deutsche Bank and Mitsubishi UFJ Financial Group who now heads Succinct Information in London.

  • Any kind of forensic accounting that’s fraudulent “clearly involves management” says Galland. But, he notes, the co-CEOs Jeremy Hodara and Sacha Poignonnec are still in place.  So investors who accepted Left’s original arguments must asked themelves “what’s changed?” Galland says.
  • “The Jumia fundamentals haven’t changed,” says Rebecca Enonchong, board chair of the Afrilabs innovation network. “E-commerce is growing in Africa but this is through locally built and tailored solutions that understand African consumers and how they buy. That’s not Jumia.”

A Question of Trust

Landry Djimpe, managing partner at Innogence Consulting in Paris, argues that the size of the addressable market in Africa is the “elephant in the room” for e-commerce. The market, he says, is “very limited, and very widely spread across countries, which makes it operationally very expensive to serve.” Many Africans have little disposable income and those who have Internet access may go online as seldom as once a week, he says.

READ MORE Network defies African digital payments drop with DPO purchase

Djimpe’s firm, which has offices in Abidjan, has carried out e-commerce customer research in Cameroon and Côte d’Ivoire. Even more important than disposable income, he argues, is the issue of trust. He draws a distinction between e-commerce that occurs completely on line in the West, and purchases in Africa which are initiated on line and then completed in person.

  • Djimpe, who comes from Cameroon, says that African consumers have a “serious trust issue” with e-commerce platforms. They expect to be able to “touch and feel” the product before parting with cash. “I need a relationship with the person I am buying from.”
  • That means that retailers won’t be able to implement payment in advance on a large scale any time soon.
  • “Payment on delivery is a must for every retailer on the continent.”
  • That could change if “digital natives” who are more used to using the Internet enter the workforce in sufficient numbers, he says. That assumes rapid job creation and at best lies years in the future as most of them are still in school, he adds.


E-commerce is widely seen as long-term beneficiary of the COVID-19 pandemic. But global hedge funds have turned against “COVID over earners”, or companies that won’t be able to retain their current rate of earnings once a vaccination is found. Some, such as Longlead Capital Partners and Tiger Management, have begun taking short positions against such stocks, which they argue are now overvalued.

“Over-earner”, however, is not a term that can be applied to Jumia, which continues to lose money. In the second quarter, Jumia reduced its operating loss by 44% to 37.6m euros. But it gave no indication of when it will break even. The company also hedged its bets on the likely impact of COVID-19, saying that possible “supply and logistics challenges” as a result of the pandemic may exacerbate the effects of changes to its business mix.

  • Most countries where Jumia operates did not implement broad nationwide lockdowns, CEO Sacha Poignonnec said on the second-quarter earnings conference call of 12 August. The four countries where lockdowns were implemented represent only about 24% of the company’s market, he said.
  • Localised lockdowns and partial curfews led to “less drastic changes in consumer lifestyles and behaviour,” said Poignonnec. “In other words, in those countries, we have not seen a surge in demand.”

Bottom line

The COVID-19 pandemic has not created a $4bn company out of a “worthless” one.