Explaining The Resurgence That Has Seen Jumia Reclaim Unicorn Status

Startups

Explaining The Resurgence That Has Seen Jumia Reclaim Unicorn Status


August 2, 2020

At 4:00 PM EDT on Friday, July 31, Jumia Technologies AG (JMIA) closed trading on the New York Stock Exchange (NYSE) at USD 15.56 per share, giving the at times beleaguered e-tailer a market cap of USD 1.22 Bn.

A day prior, the African e-commerce firm had reclaimed unicorn status, however briefly, after its stock peaked at USD 13.36 which saw the company’s valuation touch USD 1 Bn — its highest since August 2019 when Jumia stock was very much on its way downhill.

By the end of trading on that same day, Jumia’s valuation fell slightly to USD 993.43 Mn, according to Bloomberg data, as its share price finished at USD 12.67. But come the next day (July 31), Jumia’s stock did even better, rallying to its highest in nearly 12 months and making the e-tailer a billion-dollar company once again.

Before going public last April, Jumia had first hit unicorn status after French drinks company, Pernod Ricard SA, acquired 5.1 percent of Jumia for around USD 84.2 Mn in December 2018, valuing the e-commerce firm at around USD 1.5 Bn and making it the first tech unicorn out of Africa.

That valuation rose to USD 1.9 Bn on that historic first day of trading on the NYSE, but it didn’t take long before things took a bad turn.

After peaking at USD 49.77 in May 2019 (3X the listing price of USD 14.50) — valuing the company at nearly USD 4 Bn — Jumia shares plummeted significantly after data-misrepresentation allegations were put forward by Citron Research, a known short stock seller.

Jumia’s shares had nosedived since then and by September 2019, the company was no longer a unicorn as its share price had shrunk to less than half its listing price; giving Jumia a market cap of around USD 614 Mn.

That decline has generally been the case since then; Jumia’s stock even reached an all-time low of USD 2.20 at one point in March 2020. But the e-tailer may finally be catching a break.

As recently as May 2020, Jumia shares were trading at around USD 3.80 and the company’s valuation was dangling around USD 300 Mn. As of July 1, Jumia’s shares traded at USD 5.14. But the company’s stock has more than tripled since that time, having surged over the last few weeks — unlike anything seen since May last year when Jumia’s post-IPO troubles began. 

It appears investors have found renewed confidence in a company that was thought to be headed for the bottom not too long ago, especially after that damning report tanked Jumia’s stock and opened the door to lawsuits.

So, what’s responsible for Jumia’s recent resurgence? 

Well, there are several theories that can be put forward to explain the rally but it seems the only thing that is certain is that nothing is certain.

Most popular among the speculations is the idea that Jumia’s Q2 earnings report is just around the corner (scheduled for August 12), and it is anticipated that the company numbers would look good.

With the pandemic causing movement restrictions that seem to have spurred e-commerce in many circles — coupled with Jumia’s 8th annual anniversary sales promo which began in June — speculators anticipate impressive numbers, which might explain the bullish stance.

However, there are mixed opinions on the impact of the pandemic on Jumia’s business. In its Q1 2020 report, Jumia did explain that supply-chain disruptions were threatening its business.

Also, even as there is now a greater need for online shopping as a way of curbing the virus, economic fallouts have shrunk income levels in key markets. And this is not good news for e-commerce, or any business for that matter.

In any case, another explanation that has been put forward for the improved performance of Jumia’s stock is that the company’s JumiaPay and Jumia Food verticals are showing promise. 

Additionally, the fact that Jumia recently launched in South Africa and has delved into full-blown logistics — as part of a broader restructuring effort that was kicked off last year — seems to be pointing in Jumia’s favour. These factors may be contributing to Jumia’s resurgence.

However, it is important to note that share prices and market caps are often not a reflection of the direction or state of operations and at publicly-traded companies like Jumia, for instance.

Featured Image Courtesy: CIPS

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