Jumia Falls 20% On Q3 Earnings, Makes 'Progress' On Path To Profitability

Leading African e-commerce company Jumia Technologies JMIA reported third-quarter earnings Tuesday morning. Shares fell on a decline in revenue, but the move could be overdone as the company shifts its business to improve profitability.

Earnings: The gross merchandise value fell 28% year-over-year in the third quarter for Jumia Technologies. Gross profit was up 22% year-over-year in the third quarter and the operating loss declined 49% year-over-year.

The Jumia Pay segment saw total payment volume up 50% year-over-year in the third quarter.

The company said it's making “significant progress on path to profitability.”

Jumia ended the quarter with 6.7 million active consumers, an increase of 22.8% year-over-year.

Related Link: Jumia’s Stock Surges To Close The Week After Citron Turn

Business Shift: The decline in gross merchandise value comes as the company is shifting its business model to become profitable.

Jumia said it's shifting to an asset-light marketplace model, which will rely more on third-party sellers.

Sales and advertising costs in the third quarter were the lowest quarterly amount since 2017. The operating loss reported by the company was a three-year low.

Phones and electronics made up 56% of sales in last year’s third quarter. That figure fell to 43% in the current third quarter.

What’s Ahead: At the Jumia Brand Festival in September, Jumia saw over 200 participants show off their brands. In Egypt, orders at the brand festival were up 60%.

Jumia said it's piloting a physical and virtual pre-paid card in a partnership with Mastercard MA and bank ADIB.

A pilot launch of Jumia Games on the Jumia Pay platform is rolling out in five countries, which could be a new revenue source to watch as it's a subscription-based program.

$JMIA , while we are disappointed with decline in GMV, it was expected and we are encouraged at management's move to profitability. This is an Investment. Nigerians WILL embrace ecom, like the rest of the world and $JMIA will become the profitable leader..just not today.

— Citron Research (@CitronResearch) November 10, 2020

Benzinga’s Take: Jumia has spent the last 12 months focusing on breakeven for profitability. The progress was shown off in the third quarter.

Investors are selling the news as they see the decline in gross merchandise value.

“We believe the fundamentals of our business have never been stronger, setting a robust foundation for the long term, profitable growth of Jumia,” said the company.

Tuesday’s sell-off could be a buying opportunity for patient investors looking for exposure to the African region and their growth in e-commerce and online payments.

“We are making significant progress on our path to profitability with Adjusted EBITDA loss in the third quarter of 2020 decreasing 50% year-over-year,” said Co-CEOs Jeremy Hodara and Sacha Poignonnec.

Citron Research’s Andrew Left recently turned from bear to bull on Jumia and has a $100 price target.

Price Action: Shares of Jumia are down 19.6% to $12.86 in early Tuesday trading.

Disclosure: The author is long JMIA shares.

Photo credit: Max19871010, Wikimedia