Jumia Technologies (NYSE:JMIA) is another failing e-commerce company that is losing money head over feet and which most investors should avoid. If you don’t care about making money for a good while, then you might have the stomach for JMIA stock.
You might think that is a little harsh, but consider this. Since the company went public in April 2019 it shot up to $46.99 at its peak. Since then, JMIA stock has been on a slide, except for a short period in 2020, and is now trading around $7.83 per share.
That is not the kind of record that will make investors want to jump in easily. Let’s take a closer look at the company’s finances.
Jumia Technologies’ Financial Outlook
Jumia Technologies is a Berlin, Germany-based company that sells goods on the internet for African countries’ consumers. Its tech team is in Portugal and its senior leadership is in the UAE, with its stock listed in New York.
The website, group.jumia.com, has 11 e-commerce sites for the following countries: Algeria, Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, Senegal, South Africa, Tunisia and Uganda.
Let’s cut to the chase. I like to look at historical financials to see where a company is at first. Jumia Technologies produced $173 million in revenue in the last 12 months (LTM) but managed to lose more than that in net income. Its LTM net profit was negative $218.9 million.
Moreover, the cash flow situation is just as bad. Jumia Technologies generated negative $167.8 million in the last 12 months. This includes $57 million in negative free cash flow in the past six months.
In fact, the company now has just $197 million in cash on its balance sheet. That means it can’t afford to continue to run this level of cash burn very much longer.
The company did not provide any guidance although it did say that it lowered its “cash utilization,” another phrase for cash burn, to 16.8 million EUR. However, that was helped by a lengthening of its payables cycle by 13 million EUR. This can’t be sustained long term. So, in effect, the cash burn on a normalized basis was 30 million EUR or about $35 million.
Here is the bottom line. Analysts polled by Seeking Alpha expect the company to lose $2.37 per share this year, and negative $2.09 next year. To put it bluntly, that is not going to make JMIA stock move higher.
Bad News At Jumia
On Aug. 21. The Wall Street Journal had an extensive story that every potential investor in Jumia Technologies should read before investing. It reported that the Jumia had fired some of its sales staff for having improper sales practices.
The article quoted Andrew Left of Citron Research, who said, “They’re not ready for prime time.” He is a short seller and apparently had accused the company of fraud earlier in the year. He has subsequently exited his short position.
Anyone who is interested in investing in Jumia should read the original Citron report on Jumia Technologies: “Not All IPOs Are Created Equal: Jumia Is a Fraud.” He accused the company of not only burning through $1 billion in capital but also said the equity is worthless. He also says that in effect the company is a Nigerian company.
Another article came out in October 2019 in Techcrunch looking at both Citron’s claims and the company’s responses. Again, all investors should read through the issues described in this article to better understand Jumia.
What to Do With JMIA Stock
My attitude about these types of problems is very simple: where there is smoke there is usually fire. In other words, who needs this? Investing is hard enough without having to figure out whether the company is a fraud or not.
One thing is clear no matter what. The company is losing money and there seems to be no ability or outlook by management to get to profitability. Most investors will find they will want to avoid JMIA stock unless they can figure out where the margin of safety is in this situation. I can’t find any.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.