Jumia Technologies Delivers Proof Positive Of Its Strategic Evolution

seekingalpha02-21

Jumia Technologies delivered strong Q4 2023 results, confirming the company's turnaround and sustainable growth.CEO Francis Dufay highlighted the deliberate efforts behind Jumia's sustained ...

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Clay10/iStock via Getty Images In Q3, Jumia Technologies AG (NYSE:JMIA) delivered a milestone quarter which confirmed the company’s turnaround and newfound momentum. In Q4, JMIA delivered proof positive that its strategy is working and sustainable. For this latest interview, I talked to CEO Francis Dufay about strategic achievements highlighting key milestones for investors, plans for targeted improvements and growth targets, managing liquidity, the impact of a tax provision, the introduction of Buy Now, Pay Later options, the ongoing reduction in consumer incentives, navigating Nigeria’s currency devaluation, and an update on the Starlink partnership. We even discussed the company’s plans for reporting on executive ownership in company stock. Dufay acknowledged that the company still has work to do on its strategic initiatives. Still, the Q4 report and related guidance was an opportunity to appreciate all the success that has been achieved since Dufay took over as CEO of Jumia. Key Takeaways for Investors Dufay reinforced the purposeful strategic journey of the company, emphasizing the incremental yet impactful progress rooted in business fundamentals. “It keeps on getting better because we’re working on fundamental things that are gradually paying off,” Dufay stated, highlighting the deliberate efforts behind Jumia’s sustained performance. Accordingly, there is “no magic trick” to Jumia’s turnaround. The proof positive can be seen in the sustained, consistent, and positive quarterly trends in orders and GMV (gross merchandise value). Once the “heavy lifting” of improvements is done, the payoff continues over time. Dufay also pointed out that Jumia delivered a fourth straight quarter of improvements with a focus on reduced marketing and improved supply, such that Jumia can run big events like Christmas and promotional events with improved economics over the past. This approach underlines a shift towards sustainable growth, dismissing the expectation that success in African e-commerce depends on heavy marketing expenditures. Still, Dufay acknowledged that the “ultimate proof will be when we’re finally growing at [product] group level with no question.” Dufay rounded out the key takeaways by pointing to the opportunities that remain ahead. Jumia can continue to optimize and reduce costs. The company picked the big ticket items over the last year, but they will continue to improve.   The fundamental trends continue to improve for Jumia Technologies. (Jumia Q4 earnings presentation) Broad and Open Guidance Jumia provided the following guidance in its earnings presentation: “We remain committed to reducing our losses and accelerating our progress towards cash efficiency and profitable growth. Looking at 2024,  We aim to further reduce our cash utilization compared to 2023. Based on the positive impact of our growth strategy, we project an increase in both orders and Gross Merchandise Value (GMV) in 2024, excluding potential impact of foreign exchange.”  Dufay explained, “we want to prove that we can get better and better in the economics and go back to growth….The earlier we can prove it in a full quarter the better for everyone.” This guidance is purposely broad and open. The volatility of the macroeconomic environment makes guidance challenging. Dufay pointed out how last year the company adjusted EBIDTA guidance three times. Fortunately, in that case, the adjustments were all positive. During the conference call, Dufay added, “our medium-term strategy remains focused on getting to the appropriate cost base with a view to breaking even with top line growth that we can attain.” During the interview, he clarified that “break-even” referred to EBIDTA. He also pointed out that Q4 results included loss after income tax and cash flow from continuing activities because EBIDTA is not a perfect proxy for cash. Moreover, in Q4, Jumia achieved a significant tax provision from diligent negotiations, accruals, and risk management strategies, mostly in one country. This provision is a one-time effect. For the year, EBIDTA loss improved 69.7%, operating loss improved 64.2%, and loss before income tax from continuing operations improved 47.0%, all on a constant currency basis. Liquidity Position Jumia ended the year with $120M in liquidity, split between $35M in cash and $85 in term deposits and other financial assets. Dufay verified that the term deposits are as liquid as cash, although the company plans to hold them to maturity. Embracing Retail Purchasing Trends: Buy Now, Pay Later Dufay provided more details on Jumia’s engagement with Buy Now, Pay Later (BNPL) options through third-party partners. This initiative reflects Jumia’s adaptive strategies toward emerging market trends. The company tailors execution according to the dynamics of each market and partnership. Dufay noted, “It really depends on cases… In some cases, Jumia would incur some fee by the provider; in some cases, we would not incur any fee.” Jumia provides customers with several options to encourage competitive offerings. BNPL services are particularly significant in Egypt, where the concept is well-established. This form of consumer financing is also gaining momentum across sub-Saharan Africa. There is a lot of interest in consumer finance across these regions, and Jumia cannot afford to be late on this trend. Dufay described the steps involved:  Register online or offline with a wet signature. Get a credit rating Get access to some consumer finance Purchase on Jumia as a payment method  Dufay articulated the mutual value creation inherent in these partnerships, stating, “these companies doing BNPL can add a lot of value for us because they will unlock transactions that would not be possible otherwise.” Likewise, Jumia provides extensive market reach that can significantly expedite the market penetration and development goals of these financial services. Improving Repurchase Rates Jumia reported notable improvements in customer repurchase rates. The 30-day repurchase rate of the Q4 2023 cohorts of new customers, across all categories, increased by 1 percentage point versus the same cohort of 2022. The 90-day repurchase rate for the Q3 2023 cohorts for new customers, across all categories, increased by 3 percentage points versus the same cohort of 2022. Dufay noted that this improvement is fundamental to Jumia’s success. The company enjoys growing customer loyalty and receives confirmation of effective engagement strategies. Dufay further stated his belief in the importance of cultivating a loyal customer base as a precursor to achieving broader growth metrics, such as GMV growth. Despite these improvements not yet fully impacting the total top line, Dufay noted that those familiar with e-commerce dynamics can see the positive trajectory of Jumia’s business from these repurchase dynamics. Moreover, Dufay addressed the strategies behind enhancing repurchase rates, distancing Jumia from relying solely on incentives like “free delivery vouchers, crazy promotions and so on.” He mentioned that Jumia is “actually increasing repurchase rate while cutting heavily on vouchers and free shipping,” demonstrating improvement in business health. More Strategic Use of Customer Incentives In Q4, Jumia reported that 28% of orders benefited from consumer incentives, mainly in the form of vouchers, free shipping, or direct price subsidies. This share represented a significant year-over-year reduction from 43% in Q4 2022. While Dufay would not commit to a target share or further reduction in consumer incentives, he did indicate that Jumia “could live with some level of stability.” He explained that incentive levels depend on the category and the country. Vouchers are relevant for Beauty and Fashion. Direct price subsidies work best for appliances and electronics. Jumia will manage incentives such that they make sense for its growth strategies and unit economics. The company is keeping a close eye on healthy marketing ratios, which measure the effectiveness of converting marketing spend into sales revenue. Nigeria’s Economy Amid A Significant Currency Devaluation Nigerians recently experienced another significant currency devaluation that brought the official exchange rate in-line with black market rates. During the earnings conference call, Dufay observed that the Nigerian government “took a number of bold decisions over the past months on critical topics such as exchange rates and fuel subsidies that are expected to be net positive for the economy in the medium-term.” In the interview, he further explained that this economic adjustment should benefit the broader economy by encouraging capital flows into Nigeria, despite the immediate impact on consumers. He also noted that much of the economy was already operating at the real rate anyway. The net economic boost will in turn support Jumia’s business in Nigeria. (As an aside, rate cuts from the Federal Reserve will also help in Nigeria and across emerging economies). A Successful Launch for Starlink The Starlink partnership in Nigeria launched with rapid sellouts. Jumia sold out of its first kits in just three hours. The second rollout of kits was sold out in three days. The only constraint right now is the supply chain. Jumia is trying to get more kits to satisfy the strong demand. Kenya will launch in about 10 days (as of the time of writing). Jumia also plans to launch the Starlink partnership in Senegal by the end of the year. The success with Starlink is a significant development for Jumia’s brand and future financial performance. Importantly, consumers will enjoy tremendous opportunities for connectivity that offers the promise to transform local economies. Share Ownership By Executives At current levels, JMIA looks like a very attractive buy. Executive purchases of shares would add to investor confidence in the Jumia story. Dufay pointed to last year’s 20-F SEC filing to describe the existing substantial ownership of shares by executives. According to that document, Dufay owned 629,406 option grants and VRSUs (virtual restricted stock units). CFO Antoine Maillet-Mezeray owned 619,406 option grants and VRSUs. This stock comprises a significant share of each executive’s total compensation packages. The stock options also come with significant performance requirements: “Each member of our management board received stock options under the Stock Options Plan 2019, or SOP 2019, in grants made in 2019 and 2020. The options are subject to a specific GMV target being reached and expire seven years after the end of the four-year waiting period as well as in the case of certain bad leaver events. The performance target to be met for SOP 2019 is a 10% compound annual growth rate of GMV over the four-year performance period ending December 31, 2022 with respect to awards granted in 2019 and December 31, 2023 with respect to awards granted in 2020.” A portion of the VRSUs also have performance conditions. Jumia will release an updated filing in a couple of months. A statement on executive ownership of shares should accompany that filing. Dufay assured that “it will show that both myself and my colleague Antoine believe in the business.” Dufay could not otherwise speak to plans for executive purchase of shares. The Trade The response to Jumia’s earnings report was a surprising 41.2% surge followed by another 4.2% gain. These gains returned JMIA to the double-top of last year. Accordingly, the stock should have much more room to grow as Jumia established a proof positive Q4 with even better results to come in 2024 (absent any unexpected macroeconomic shocks of course). Accordingly, I am maintaining my strong buy rating on JMIA. I like the stock as one of the few pure play options available to American investors for broadly and directly investing in Africa’s economies, especially given the imminent demise of Global X MSCI Nigeria ETF (NGE).   JMIA surged right back to the double top of 2023. (TradingView.com) A Proof Positive Conclusion Jumia Technologies’ CEO, Francis Dufay underscored the sustainability of the company’s growth and the effectiveness of its strategic initiatives. From enhancing repurchase rates and reducing reliance on consumer incentives to navigating economic challenges and embracing innovative partnerships like Starlink, Dufay revealed a company that is not only adapting to the complexities of the African e-commerce landscape but is also setting a course for long-term success. With a focus on operational efficiency, strategic cost reduction, and leveraging emerging retail trends such as Buy Now, Pay Later, Jumia is poised to continue its trajectory of improvement and growth. I look forward to future confirmations of the strength of Jumia’s strategic vision and operational excellence.  Be careful out there!","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.0","shortVersion":"4.24.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2413671094"}