If there is anything Jumia is close to meeting, it is certainly not profit. Early this morning, Rocket Internet, the parent company of Jumia said the company suffered a net loss of USD61 million loss in six months.
To understand the weight of the number, a conversion using the real-time exchange rate to Naira (NGN) shows that Jumia made a net loss of NGN22 billion.
In context, it is more than the net revenue of three of Nigeria’s commercial banks with over NGN3 trillion in assets.
A review of the company’s performance in the first six months in comparison to the year before shows that the company’s fortune dwindled despite the easing in Nigeria’s economic hardship. Last year within the first six months, Jumia reported a net loss of EUR38 million compared to EUR52 million reported this year.
While Rocket Internet has reclassified Jumia as Jumia from the general merchandise grouping it carried in its portfolio. The parent company is also trying to recapitalise the local unit by putting more cash into its operations. As at last year, Jumia only had EUR4 million left in cash and cash equivalents. This year, about EUR24 million was said to be left in its books as cash.
As a rationale for the dwindling fortunes of the company, Rocket Internet has finally taken the bull by the horn. For the first time in a long while, Rocket Internet is now facing reality. The group said it recorded net impairments of EUR10 million on its Jumia operations.
their own words, “The impairments are attributable to the deteriorated business outlook for some regionally operated business models. Growing competition and increasing pressure on margins can be observed in the local markets. A prominent example of this development is the purchase of Souq.com (eCommerce platform based in Dubai) by Amazon in the first half of 2017″.
From the positive aspect of the result, Rocket Internet said: “As of June 30, 2017 the reportable segments HelloFresh, GFG, Jumia and Home & Living reflect the most mature business activities of Rocket Internet”. Maturity might mean different things to different people. In its five years in operation, the company has been able to maintain its operations albeit with a collapse of its activities into one unit. A stabilisation and subsequent development of a new business model might justify the appellation of maturity
However, with cost-cutting and layoffs, Rocket Internet admitted that an increase in the company’s revenue to EUR37.5 million from EUR33.0 million reported in 2016 was as a result of the merger of eCommerce businesses with marketplace and classifieds businesses.
Apart from the massive fall in eCommerce sales in its key markets, there are certain macroeconomic risks that are beyond the power of Jumia. In Nigeria and Egypt, there was continuous devaluation that has seen their currencies deteriorating by more than 70%.
With its coterie of bluechip investors such as Orange, MTN, Millicom, AXA; it is safe to say Jumia has a strong backing from local and regional investors, but these investors are keeping mute with their pocket to save the company from imploding under the weight of debt.
The last raising achieved by Jumia was when CDC staked about GBP50 million to get a stake in the company. The cash from stake sale would soon dry up if the company does not go on an initial public offering in the next 12 months.
However, without reaching profitability, the IPO idea might be dead on arrival as investors would worry that Jumia has not developed a strong business model that can guarantee its sustainable existence.
It is worthy to note that Rocket Internet has been quiet on when the company will start reporting its first profit. For rest of the year, the company said “Jumia is expected to grow revenues by a low double-digit percentage during the financial year 2017. Regarding EBITDA, we forecast an improvement by a mid single-digit percentage range. Accordingly, EBITDA margin for Jumia is estimated to improve moderately”
Jumia is an arch-rival to Konga, an indigenous player but now owned by South Africa’s Naspers and Swedish tech investor, Kinnevik.