Falling revenues and mounting debt spell trouble for Jumia Technologies

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).

Jumia Technologies aims to become the biggest e-commerce platform for the region, providing a place where people can buy and sell goods, along with logistics and payment services. Initially, this idea enjoyed some success. Founded in Nigeria in 2012 by several former employees of the management consultancy McKinsey, the company quickly expanded to several other countries in the region.

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At the same time, it also started to diversify its business, launching several other subsidiaries, including a food-delivery platform, a hotel-booking service, a lending company and even a cryptocurrency division. At one stage, Jumia was worth more than $1 billion.

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.

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