Upcountry Expansion And International Sourcing Will Unlock New Markets

Key Takeaways

• Expanding into underserved regions through differentiated logistics could drive growth and increase revenue without raising fixed costs.
  
• Strategic partnerships and cost-efficient operations aim to improve profitability and market penetration, potentially enhancing revenue and customer loyalty.
  
• Jumia's financial stability is challenged by declining revenue, lower average order values, increased operational losses, currency volatility, and heightened cash burn.

Catalysts

Operates an e-commerce platform in West Africa, North Africa, East Africa, Europe, the United Arab Emirates, and internationally.

• Jumia is focusing on upcountry expansion to unlock new markets and address underserved regions, which could drive topline growth without increasing fixed costs by leveraging a differentiated logistics network. This is expected to positively impact revenue.
  
• Increased international sourcing, with strategic partnerships and a diversification of suppliers, aims at expanding Jumia's product assortment at affordable prices, potentially boosting sales and improving order level profitability. This is likely to enhance revenue and net margins.
  
• Jumia’s focus on cost-efficient marketing strategies and operational efficiency, such as consolidating logistics operations, aims to improve profitability by reducing fulfillment costs and maintaining disciplined expense management. This should positively affect net margins and cash flow.
  
• The emphasis on improving customer and seller experience, including enhancing logistics and technology platforms, is expected to drive stronger customer loyalty and satisfaction, potentially leading to increased repeat purchases and revenue growth.
  
• Investment in expanding the JForce agent network is likely to enhance customer acquisition and deepen market penetration, which could result in increased order volume and contribute to revenue and earnings growth.

Jumia Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jumia Technologies's revenue will grow by 7.1% annually over the next 3 years.
• Analysts are not forecasting that Jumia Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Jumia Technologies's profit margin will increase from -59.2% to the average US Multiline Retail industry of 7.0% in 3 years.
• If Jumia Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $14.4 million (and earnings per share of $0.1) by about May 2028, up from $-99.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.6x on those 2028 earnings, up from -3.0x today. This future PE is greater than the current PE for the US Multiline Retail industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Jumia Technologies Future Earnings Per Share Growth

Risks

• Jumia's revenue declined by 23% year-over-year in USD, which signals potential instability in revenue streams and poses a risk if the trend continues.
  
• The average order value for physical goods decreased significantly, from $45.5 in Q4 '23 to $35.5 in Q4 '24, primarily due to currency devaluations and lower corporate sales, affecting net margins.
  
• Adjusted EBITDA was negative $13.7 million for Q4 '24, reflecting increased operational losses and negatively impacting earnings.
  
• Currency devaluations in 2024 affected performance, where GMV declined by 12% in USD, indicating risks to future revenues and profitability given the volatility in currency markets.
  
• Cash burn increased to $30.6 million in Q4 '24 compared to $26.8 million in Q4 '23, driven by one-time costs and working capital increase, impacting cash flow and liquidity positions.

Valuation

• The analysts have a consensus price target of $3.754 for Jumia Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.91, and the most bearish reporting a price target of just $2.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $205.9 million, earnings will come to $14.4 million, and it would be trading on a PE ratio of 48.6x, assuming you use a discount rate of 7.6%.
• Given the current share price of $2.45, the analyst price target of $3.75 is 34.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.