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Jumia targets Ethiopia, DRC and Angola despite mixed 2020 results

By Quentin Velluet
Posted on Tuesday, 9 March 2021 08:32

In a Jumia warehouse in Lagos, Nigeria © REUTERS / Akintunde Akinleye

The African e-commerce platform is on a new trajectory. Despite posting mixed fortunes in 2020, its founders now wish to launch it in the DRC, Ethiopia and Angola, three reputedly difficult markets.

“We hope one day that we will have achieved enough […] milestones to put the issue of profitability behind us.”

Sacha Poignonnec appeared to be extremely anxious on 24 February 2021, the day Jumia’s results for the 2019-2020 financial year were announced. As he expressed this wish, was he thinking of Amazon – with which Jumia is often compared – which only became profitable eight years after it was founded in 1997?

Mixed results

Nine years after its birth, Jumia, launched by Poignonnec and Jérémy Hodara, has still not found its equilibrium point. And it is posting mixed results for 2020 – a very good year for global e-commerce.

The platform present in 11 countries recorded a gross operating surplus of $139.6m, down 13% from 2019. This figure is the result of two strategic decisions made during the year, namely refocusing activities on the most promising markets and partially abandoning high-margin technology products (smartphones and other equipment) in favour of lower-margin consumer products.

As a result, Jumia – which has slimmed down – sells and earns less, but has better control over its trajectory towards profitability. In 2020, the platform had won over 700,000 active customers (+12% to 6.8m users), reduced its losses ($149m compared with $228m for the 2018-2019 financial year) and increased its margin by 12%.

“The majority of our countries are now breaking even before general and administrative costs,” says Poignonnec. Jumia has also drastically reduced its advertising budget (-42% over one year).

The negative impact of the health crisis

In terms of logistics, the company claims to have delivered 4.8m parcels during its Black Friday ad campaign, 55% of which was distributed in less than 24 hours. The platform also claims to have handled nearly 500,000 parcels for 270 customers outside of Jumia “including large companies, such as banks, major retailers, mobile operators and SMEs in various sectors.”

In spite of everything, the director acknowledges that “Covid has had a rather negative effect on the activity due to […] the logistical disruptions that we have experienced throughout the year.”

In its press release, the company also adds that due to the “limited implementation of national lockdown measures in all our markets, the pandemic has not led to a radical change in consumer behaviour or a significant acceleration in the adoption of e-commerce by consumers at the pan-African level.”

A model to be found

“The fact that Jumia is not benefiting from the pandemic despite its leadership position, like Amazon in the US and Europe, or Alibaba in Asia, proves that the platform has not yet really found the model of e-commerce that works for Africa,” said Julien Garcier, head of the consulting firm Sagaci Research.

The latter also questions the platform’s shift towards consumer products. “Are African markets able to deliver these kinds of products? How does one decide between Jumia and Jumia Food for the distribution channel? Many questions remain to be clarified on how to reassure the consumer, on the use of the applications and the quality of the products,” he says.

In Kenya, for example, Jumia was inspired by its local competitor Copia. It has established a network of small partner-shops where orders can be placed and received. “They are still groping their way through the process of understanding how to make continental e-commerce explode,” says Garcier.

Investors are following

For the time being, investors continue to have confidence in Poignonnec and Hodara. During 2020, the share exploded by 950% on Wall Street according to a Nasdaq analyst and the stock was trading at around $47 the day after the 2020 figures were made public.

This valuation should be put into perspective, given the reality of Jumia’s activities on the continent, says the head of Sagaci Research: “The market capitalisation [$3.8bn], represents about 30 times the company’s turnover, while Amazon’s [$1560bn] represents only five times its revenue.”

New locations and monetisation of subsidiaries

Confident in spite of everything, the management team is looking to the long term. While Jumia has just announced the launch of Jumia Food in Egypt, thanks to UberEats’ exit, Poignonnec and Hodara also have plans to establish themselves in the DRC, Ethiopia and Angola, three reputedly difficult markets. Other projects in the pipeline include making JumiaPay and Jumia Logistics full-fledged companies.

However, these services still need to prove their relevance. JumiaPay, the main payment option on Jumia, has seen its number of transactions fall by 14% in 2020. But the application is also used to top up phone credit and pay for purchases from Jumia Food. It recorded a total transaction volume of $196m (up 58%) and still remains a growth area for the group.

The African Continental Free Trade Area (AfCFTA), which came into force on 1 January, could help simplify Jumia’s task in Africa. But for the time being, the traditional obstacles limiting intra-African trade (deficient logistical infrastructure, diversified legal regimes, bureaucracy and red tape, petty corruption at the borders, insufficient access to commercial information) also hinder the development of e-commerce.

“Jumia has succeeded in becoming the archetype of continental e-commerce, and it is up to them to continue to invent it from scratch,” concludes Garcier.

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