Things are looking bright for Africa. The continent has one of the youngest populations in the world, and its people have also become increasingly adept at using technology. Smartphones play a role in a financial sector that is arguably more advanced than in many developed countries.
No wonder, then, that the region’s technology industry is attracting attention. However, not all African tech firms are worth investing in. A case in point is Jumia Technologies AG (NYSE: JMIA).
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Rivals dent Jumia’s prospects
On the face of it, Jumia’s business model appears plausible. The problem is that it is facing intensifying competition, especially from the Chinese firm Temu, which is drawing on its founder’s experience with the Asian e-commerce market.
Rivals have already dented Jumia’s prospects. Last year, it decided to close down its operations in several countries, including South Africa, the region’s largest economy. While Jumia is spinning this move as a strategic regrouping to shore up profitability rather than a retreat, the fact remains that the company has never made money and has accumulated large losses. Of course, operating on the edge of profitability, or even losing money, isn’t always a problem for tech firms, providing they can grow fast enough to hold out the prospect of being able eventually to recoup shareholders’ losses.
However, even before Temu started to become a problem, Jumia’s revenue growth was at best inconsistent. Sales peaked in 2022, with little prospect of them recovering fully in the foreseeable future, and this year, they are expected barely to eclipse the level reached in 2019.
Given that Jumia is facing increasing competition, stalling revenues and mounting debt, it’s no wonder many investors seem to have given up on the company entirely. The share price has slumped by nearly half in the last few weeks and is now 85% below its 52-week high.
With prices continuing to fall and many brokers contemplating ceasing coverage of the company, I suggest going short at the current price of $2.24 at £500 per $1. Given the relatively small size of the stock, which makes it a bit more volatile than normal, I recommend a stop-loss at $4.10, which gives you a total downside of £930.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Reeves ‘looks at minimum UK shareholding' in ISA reformOn top of a rumoured £10,000 cash ISA limit, chancellor Rachel Reeves is reportedly considering adding a minimum UK shareholding requirement to the stocks and shares ISA
-
Rightmove: Asking prices rise by 0.3%, but increase is lower than typical for OctoberOctober saw asking prices grow by £1,165 on average, Rightmove says, but the increase is far below the usual autumn bump as the property market braces for next month’s Budget.
-
Albert Einstein's first violin sells for £860,000 at auctionAlbert Einstein left his first violin behind as he escaped Nazi Germany. Last week, it became the most expensive instrument not owned by a concert violinist
-
Who is Rob Granieri, the mysterious billionaire leader of Jane Street?Profits at Jane Street have exploded, throwing billionaire Rob Granieri into the limelight. But it’s not just the firm’s success that is prompting scrutiny
-
Emerging markets boast top-quality growth stocks at bargain pricesOpinion Lim Wen Loong, investment director at Ashoka WhiteOak Capital, selects three growth stocks where he’d put his money
-
Beware the bubble in bitcoin treasury companiesBitcoin treasury companies are no longer coining it. Short this one, says Matthew Partridge
-
Klarna leads a financial revolution – should investors buy?Klarna has ambitions to rewire the global payments system and has huge growth potential
-
New faces don’t solve old problems – why strategy also matters when it comes to investment trustsOpinion Changing managers often fails to boost a trust’s performance, says Max King
-
How to profit from silver’s record riseSilver often lets investors down, but there may now be room for further gains, says Dominic Frisby
-
Are venture-capital trusts worth investing in?Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
