Why Jumia Could Be Worth More In Sum Of Parts Valuation

Shares of Jumia Technologies JMIA went on quite the ride Tuesday after reporting first-quarter financial results.

Investors saw the company report a drop in revenue and shares immediately sold off. Shares traded down to $17.90 before climbing up throughout the day and ended in the green.

What Happened: Jumia reported a year-over-year revenue decline of 6.4% in the first quarter. Gross profit in the first quarter improved 11% year-over-year. Gross profit after fulfillment expenses was up 149% year-over-year.

“Our first quarter results reflect solid progress towards profitability. The drivers remain consistent: selective and disciplined usage growth, gradual monetization and continued cost discipline,” said Co-CEOs Jeremy Hodara and Sacha Poignonnec.

Gross merchandise value fell 13% year-over-year in the first quarter. The company’s JumiaPay segment saw total payment volume up 20.9% and transactions up 6.7% year-over-year.

Market Missing Company Focus: Jumia has put emphasis on focusing on an asset-light marketplace model relying more now on third-party selling. First party revenue was down 34.7% year-over-year in the quarter.

“Market is not accustomed to growth stocks of this nature targeting profitability rather than revenue at all costs,” Short Hills Capital Managing Partner Steve Weiss told Benzinga.

Jumia is also focusing on higher-margin product categories. Weiss, a long-time Jumia bull, said shipping items like electronics are expensive and have smaller margins.

Related Link: Exclusive: Stephen Weiss Talks Jumia, Amazon Comparisons, JumiaPay Becoming Square Of Africa

What’s Next: One area for growth Jumia mentioned in the quarterly release was rolling out quick commerce deliveries. The company’s Jumia Food segment has operated for over nine years and is now in 10 countries. Weiss called this a smart idea and good product extensions.

JumiaPay continues to shine bright and represented 2.4 million transactions in the first quarter and 26% of all transactions compared to 18.7% in the year-ago period. Management has explored spinning off its digital payments business and logistics business.

Weiss, who owns shares of the stock, said the metrics in the quarter were fine and Jumia “continues to show discipline.” He thinks the company needs to accelerate its growth.

Potential Buyout: Citron Research’s Andrew Left told Benzinga last week Jumia makes a good buyout target for a larger company like Amazon.com AMZN or Alibaba Group Holding BABA.

Benzinga asked Weiss if a buyout of Jumia makes sense for a larger player to gain exposure to the growing e-commerce market in Africa.

"It certainly makes sense," he said. "Amazon is in Egypt and should expand to Africa."

The African market could be tough for a new player to come in and start from the ground up with low income levels, low broadband penetration rates and fewer cities with dense populations, Weiss added.

"Jumia has done the heavy lifting in assembling logistics network and building brand recognition so should be acquired by either BABA or AMZN at this point," he said. "The sum of the parts is more than the whole."

JMIA Price Action: Shares of Jumia traded around $23.42.

Disclosure: The author is long shares of JMIA

Photo courtesy Jumia.