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Jumia (NYSE:JMIA) was once heralded as the Amazon (NASDAQ:AMZN) of Africa. That was back in April 2019, when JMIA stock popped from its $14.50 IPO price to a $50+ price tag in a matter of days.
Since then, the hype has faded, mostly because — as it turns out — Africa isn’t ready to jump into the digital era and have an Amazon-like company redefine its shopping industry.
Rather, I should say Africa wasn’t ready for that to happen.
Then 2020 came around.
Everything has changed, and now, Africa is ready to leapfrog into the digital era — and Jumia is ready to turn into the Amazon of Africa that it was supposed to be back in 2019.
Of course, this all means that JMIA stock is ready to fly high once again.
Here’s a deeper look.
JMIA Stock: Covid-19 Kickstarts Africa’s Digital Revolution
Africa is broadly considered the last great frontier of the global digital revolution. Whereas internet penetration rates in every other continent hover above 60% — and are around 90% in North America and Europe — Africa’s internet penetration sits at just 40%.
Given the huge value-add of the internet, pretty much everyone agrees that the mass digitization of the African continent isn’t a matter of “if”, but rather a matter of “when.”
It increasingly appears that “when” is now.
You see, the thing about the internet is that it adds so much value to individuals and businesses that, once you’ve adopted it, there’s no going back. The only problem in Africa was getting individuals and businesses to adopt the internet.
Covid-19 has done just that. It’s been a difficult transition, but in 2020, African consumers and businesses have pivoted to more broadly adopting digital products and services. With the adoption step out of the way, the rest is easy.
These individuals and businesses won’t go back to an internet-free world. They will lean more and more into internet-enabled services and products, and kickstart the long overdue African economic digital revolution.
Naturally, this is great news for JMIA stock.
5G Sustains the Revolution
If Covid-19 started Africa’s digital economic revolution in 2020, then 5G will sustain it over the next decade.
There are two ways to provide internet access. Wired (which requires laying big fiber optic cables all over; this can be a costly and labor intensive process) and wireless (which requires just a few base stations that beam high-speed mobile internet connectivity to everyone, all the time, regardless of where they live; this is a low-cost and low-labor process).
Because Africa is an economically constrained continent, wired infrastructure is scarce, and wireless internet — with its more affordable and scalable infrastructure — is go-to solution.
5G represents the next big breakthrough in wireless internet; a breakthrough so large that it provides Africa a highly efficient, affordable and scalable way for governments and telecom agencies to connect the entire continent to lightning fast internet.
That’s why Africa is jumping on the 5G bandwagon. Telecommunications company MTN Group has already started deploying superfast 5G mobile internet throughout Nigeria. Safaricom plans to launch 5G mobile internet services in Kenya this year. Vodacom (OTCMKTS:VDMCY) has launched a 5G network in Lesotho. Multiple companies are running 5G trials in South Africa.
More companies and countries will follow suit over the next few years, meaning the 5G revolution of the 2020s will allow Africa to leapfrog into the modern era of ubiquitous high-speed internet connectivity.
As that happens, Africa’s e-commerce market will start to boom, especially since Covid-19 has already kick-started the digital revolution.
It should be no surprise, then, that joint research from Ericsson and McKinsey finds that Africa’s e-commerce market is expected to grow by more than 400% to $75 billion by 2025, thanks to 100% growth in smartphone connections.
JMIA stock will be at the epicenter of this boom.
Jumia Is the Market’s Best Option
When it comes to Africa’s e-commerce market, Jumia is the best option. For a few reasons.
First, Jumia is already there. No one else is. Amazon and Alibaba (NYSE:BABA) sell selectively across the continent. But there are big restrictions on what items customers can buy, and delivery times tend to be huge. Jumia, on the other hand, has a huge inventory selection and can ship items in as few as four to five days.
Second, Jumia has the brand. Because Jumia already has a larger presence than Amazon, Alibaba and other e-commerce platforms, it is widely recognized as the place to shop online in certain African countries. This brand awareness and equity will go miles in terms of bringing customers to the Jumia platform as Africa’s digital revolution unfolds over the next decade.
Third, Jumia has a deep understanding of the local community. It’s no secret that selling online in Africa is a lot different than selling online in North America or Europe. Over several years of operating on the ground-floor in African markets, Jumia has gleaned an understanding of how to create an e-commerce platform tailored to the unique needs, wants and desires of African buyers and sellers. This understanding should help Jumia continue to standout from platforms like Amazon.
Fourth, Jumia has JumiaPay, a mobile-focused, e-money platform that is especially useful in helping facilitate e-commerce transactions in Africa because almost 70% of sub-Saharan Africans are “unbanked”.
Overall, then, Jumia really is Africa’s best option when it comes to e-commerce platforms.
Huge Long-Term Upside for Jumia Stock
Let’s say that Africa does rapidly digitize over the next several years, and that Jumia does turn into the Amazon of a booming African e-commerce market.
How much higher could JMIA stock go?
Well, at the JMIA stock price today, Jumia is worth about $650 million. Amazon has a $1.5 trillion market cap. Alibaba’s market cap is $730 billion.
Jumia probably won’t ever get that big, because Africa digitization rates will forever lag those in the rest of the world and the continent is just generally poorer with a smaller retail sales pie.
Still, in terms of GDP, Africa’s economy is about 8% the size of Asia’s economy.
By those numbers, if Jumia replicates the Alibaba business model in Africa, Jumia could easily soar to about 5% the size of Alibaba. That implies a potential valuation for Jumia of $35+ billion, which means that JMIA stock is a potential 50-bagger in the long run.
Bottom Line on JMIA Stock
JMIA stock has always been a high-risk, high-reward play on Africa’s digital revolution.
For most of its life on Wall street, the “risk” part has outweighed the “reward” part because Africa’s digital revolution simply failed to gain much traction. But, as 2020 has rolled around, the “reward” part is now starting to outweigh the “risk” part, mostly because Africa’s digital revolution has finally arrived.
If this revolution does persist over the next decade — and if Jumia leverages innate advantages to dominate Africa’s booming e-commerce market — then JMIA stock could could turn into one of the stock market’s biggest winners.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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