Rocket Internet, the parent company of Jumia said it reduced its full year EBITDA losses of EUR234 million. However, the result still shows a huge pile of losses that must be worked on.
Reporting an EBITDA losses of EUR741.5 million loss, the result shows that company has cut its losses by 176% on a year on year basis.
Jumia, its Nigerian company with operations across other African countries saw a reduction in its adjusted EBITDA losses from EUR161.3 million in 2015 to EUR91.9 million in 2016. This is approximately NGN30.6 billion using official real time exchange rate.
Rocket Internet claimed that the collapsing of Africa Internet Group into Jumia has had a ‘positive effect on user behavior and brand recognition’.
The report covers aggregate sales of Rocket Internet’s companies which includes its Food & Groceries, Fashion, General Merchandise and Home & Living.
The company said total sales/ revenue rose by 29%, from EUR1.7 billion reported in 2015 to about EUR2.2 billion for the year under review.
The group has also tried to improve on its aggregate adjusted EBITDA margin. This fell by 16.4 percentage points year on year from -31.3% in 2015 to -14.9% in 2016.
Commenting on the result, Oliver Samwer, CEO of Rocket Internet said “In 2016, our selected companies have made further progress towards profitability while increasing their sales”.
The journey to profitability for Jumia might be far away than we think. It is good to see that Jumia seems to be taken steps to reduce its loss through cost cutting measures. However, the company has reduced its investment on offline marketing, a channel that was crucial to its rise. Any further spike on this expenditure item might further increase losses should economic cycle, currency depreciation in Nigeria fail to have significant improvements.
However, Rocket Internet still has some amount of cash as fire power. Available cash and cash equivalents rose to EUR1.5 billion with an increment of EUR0.8 billion gained within 2016. How far the group will invest more of it in Jumia remains to be seen.
This result does not in anyway paint a real picture of what is going on with Jumia.
There are some caveats that should be considered when looking at Rocket Internet’s result. Firstly, this result has not shown in depth details about the operations of Jumia. There are no information as to which market is profitable as well as which product line is delivering value to the bottomline.
From another angle, many Rocket Internet companies are largely seen by analysts as overvalued. AB Kinnevik has clashed with the Samwer Brothers, Oliver, Marc and Alexander Samwer on how many of its ‘copycat’ startups should be valued. The disagreement has seen Kinnevik cutting its stake in Rocket Internet startups by half in early February.
On the overall, the company has some energy behind it that can be harnessed to grow real companies. However, some level of transparency and humility is needed on how it value its holdings, including Jumia.
The company is competing against Konga, a company jointly owned by Naspers Limited and Kinnevik AB. The Nigerian eCommerce ecosystem has also given rise to other niche players that are further reducing the impact of Jumia and Konga.
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