Jumia Looks Beyond Profit Target With Plan to Spin Off Units

LAGOS (Capital Markets in Africa) — Jumia Technologies AG is looking beyond an immediate target of generating a profit from its pioneering African e-commerce business, laying out longer-term plans to spin off divisions and enter new countries.

The question of when the Berlin-based company will become profitable has hung over the group since a high-profile New York listing in 2019. And while Jumia has been careful in recent months not to set itself a deadline, co-Chief Executive Officer Sacha Poignonnec said it’s time to lay the groundwork for the next phase of growth.

That will partly focus on Jumia’s division that helps transport goods between buyers and sellers in 11 African countries, including Nigeria, Egypt and Uganda, and the payments business that allows them to settle transactions. The company may eventually look to spin them both off into separate entities, Poignonnec said in an interview.

“We created something that does not really exist in Africa, which is an end-to-end logistics partner on the continent,” said Poignonnec. “We have built it from the get-go so that one day we are in the position to carve it out if we want to.”

Jumia was started in Lagos by Frenchmen Poignonnec and Jeremy Hodara in 2012 and began to attract attention due to the entrepreneurs’ ambitious plan to bring e-commerce to a continent with relatively weak internet connections and banking systems, chaotic transport, and unreliable addresses. The New York initial public offering at first attracted a surge of interest, but a damning report by short sellers Citron, who alleged fraud, sent the stock into a downward spiral.

That started to change earlier this year when stay-at-home warnings during the Covid-19 pandemic began to paint a more positive picture for e-commerce companies — even in Africa. Citron said in October its analysts had “learned a lesson” and wouldn’t bet against Jumia’s rally, even as challenges such as slow delivery times remain.

The stock has surged since and has increased by more than 500% in the past 12 months. The shares traded 1.4% lower in early New York trading on Thursday, valuing the company at about $3 billion.

Jumia has opened its African logistics network to third parties, helping to add volumes and negotiate better pricing on shipping and control costs, Poignonnec said. The company has also benefited from a reluctance so far by industry giants Amazon.com Inc. and Alibaba Group Holding Ltd. to expand significantly on the continent, with Naspers Ltd.’s Takealot one of few similar businesses.

“The focus is on reducing losses and controlling costs, and deciding where to allocate our resources,” Poignonnec said. Jumia’s third-quarter operating loss was 28 million euros ($33.9 million), down 49% from the previous year.

Jumia exited three African markets last year, but will consider other opportunities in the much longer-term including Ethiopia, Poignonnec said. Being pan-African enables investors to get exposure to the continent rather than one country, he said, while partners such as wireless carrier MTN Group Ltd. and financial group Mastercard Inc. — which both invested in Jumia before the IPO — can work with the group across several markets.

Other growth options include gaming and video streaming, said the CEO.

“No one questions the relevance of e-commerce as a business — and the opportunity in Africa is massive,” said Poignonnec. “Seven years ago, people were questioning how we are even going to do this, now the only question remains on profitability.”

Source: Bloomberg Business News