A major African e-commerce seller is seeing negative activity after a downgrade from Morgan Stanley analysts.
Eric Volkman at The Motley Fool reports Jumia, a company known for expanding ecommerce merchandise sales in the African continent, is down more than 10% over the week since Morgan Stanley pro Luke Holbrook changed its rating from ‘neutral’ to ‘sell’.
Indicated pain points in Holbrook’s analysis, according to Volkman, include a move toward “lower-margin” products, as well as a lackluster increase in a metric known as gross merchandise value or GMV.
“Gross merchandise value (GMV) refers to the volume of goods sold via customer-to-customer or e-commerce platforms,” explains Adam Hayes at Investopedia. “Gross merchandise value is calculated prior to the deduction of any fees or expenses. It is a measure of the growth of the business, or use of the site to re-sell products owned by others through consignment.”
Jumia’s Q3 numbers were also underwhelming, where the company reported an increase of 8% in active customer count, and 8.5% in revenue. That’s less than it would have taken to promote new ebullience on the part of traders.
All of this together is causing some consternation for investors.
For market context, JMIA stock was as high as $60 in February, and $30 in June. The slow and steady decline bears out some of these revised recommendations and warning signs that we now see in the above stories.
Volkman, though, still sees long-term potential.
“Other e-commerce companies throughout the world are delivering significantly higher growth numbers while landing squarely in the black,” Volkman writes. “Jumia isn’t exactly a new business, so perhaps investors are unwilling to accept single-digit improvements and/or the lack of profitability at this stage. But they shouldn’t necessarily dismiss the company. According to Holbrook, the massive African e-commerce market is only 1% to 2% penetrated and as such, offers vast opportunity to early movers like Jumia. Also, it’s still fairly early days for the company’s pivot, and it could well succeed in the coming years.”
Keep an eye on how Jumia is doing as a regional e-commerce provider in the context of an industry where mega-retailers like these often grow and scale quickly over time – and if you have related holdings, it may be time to re-balance.
