Some folks might be tempted to invest internationally in the e-commerce sector through Jumia (JMIA) shares, but the risks are too great with this company right now. As a result, I am bearish on Jumia stock.
Jumia Technologies is an African e-commerce platform. On the surface, Jumia seems promising. Impressively, the company is active in 11 countries across the African continent, which collectively comprises 600 million people. That’s a sizable potential pool of customers, and it’s tempting to think that Jumia is tapping into a ground-floor opportunity.
Furthermore, as we’ll discover, Jumia is forming an interesting partnership with a company that could make the concept of “meals on wheels” a reality. Meanwhile, there’s an 800-pound e-commerce gorilla with global ambitions, and that’s bad news for Jumia and its shareholders.
Package Delivery Team-up Could Bring Jumia Stock Back to Life
It might seem harsh to say that Jumia stock is on life support, but sometimes traders just have to face reality. In February of 2021, the stock was flying high, surpassing $60 at one point. Bear in mind, though, that this was the height of meme stock mania. Traders on social media were furiously short-squeezing stocks even when the companies weren’t profitable.
Unfortunately, Jumia fits that description perfectly. The company wasn’t profitable then, and it’s still financially underwater. In fact, Jumia’s financial hole only seems to be getting deeper.
In the three months ended March 31, 2021, Jumia incurred a net loss of around $24.9 million. Fast-forward to the same period in 2022, and that loss ballooned to roughly $69.5 million.
Clearly, Jumia needs a catalyst to boost its investors’ spirits, especially with the share price recently approaching $5. Anything below that, and we’d be getting into penny stock territory.
However, there’s one piece of news that might pique some traders’ interest in Jumia, though oddly enough, it’s not mentioned on Jumia’s investor relations news page. Still, it’s worth noting that, according to TechCabal, Jumia subsidiary Jumia Food is partnering with a last-mile logistics company, Errand360.
Here’s a big surprise: Errand360 is a bicycle delivery company. The idea is that a customer can order a meal through the Jumia Food app, and one of Errand360’s hundreds of riders would deliver the meal by bicycle.
Errand360 Co-Founder Jaiyeola David touted the partnership as a “mega deal and a game changer” and reported that it will last “for at least three years across multiple locations with at least 100 riders.” Certainly, it could be advantageous for Jumia to be able to deliver hard-to-reach places. However, whether this team-up turns out to be a “mega deal” remains to be seen.
Amazon’s Expansion Poses a Major Threat to Jumia
While the collaboration with Errand360 is noteworthy, it won’t likely be enough to make Jumia a profitable business. To make matters even worse, Jumia could soon have a competitor with deep capital reserves. It’s the e-commerce giant that no one can afford to ignore – Amazon (AMZN), which has an astounding $1.16 trillion market cap and a vast network of sellers and buyers. In comparison, Jumia’s market cap is only $600 million, and Amazon is profitable while Jumia isn’t.
Now, you might be thinking that Amazon and Jumia can peacefully co-exist on separate continents without one company stealing market share from the other. However, that’s not how Amazon works. The e-commerce giant is known to destroy everything in its path, at least in the U.S. Now, Amazon has global ambitions, and that’s bad news for Jumia.
It’s difficult to confirm this, but leaked documents suggest that Amazon plans to expand into five new countries by early 2023. These targeted countries include Belgium, Chile, Colombia, Nigeria, and South Africa.
In Nigeria, Amazon’s launch is supposedly due to take place in April 2023. Meanwhile, Amazon’s move into South Africa is apparently anticipated to take place in February 2023. Those two African e-commerce platform launches are reportedly code-named Project Fela.
It’s not implausible that Amazon would seek to expand its operations into more countries. Even without the leaked documents, this would probably happen sooner or later. Emerging markets like Africa could provide fertile ground for Amazon to set up its e-commerce marketplace.
Besides, with Amazon dominating e-commerce in the U.S. — which probably doesn’t offer as much growth potential now that the COVID-19 crisis has subsided — it makes sense for Amazon to seek revenue expansion abroad.
Wall Street’s Take on JMIA Stock
Turning to Wall Street, JMIA has a Hold consensus rating based on two Holds. Jumia Technologies’ average price target is $6.95, implying 14.1% upside potential.
Jumia Stock Doesn’t Have Enough Positive Catalysts
Jumia’s team-up with Errand 360 probably won’t be enough of a “mega deal and a game changer” to convince traders to bid up the Jumia stock price. Plus, Jumia’s earnings losses are only getting deeper, it seems.
The last thing that Jumia needs is for Amazon to move into the African e-commerce market. Yet, that’s likely to happen at some point and might even take place in early 2023. Therefore, it’s likely that Jumia stock will only continue to lose value and disappoint the hopeful shareholders.
