They have drawn the first knife on Jumia, calling it a “fraud”. The Americans are wrong – Jumia is not a fraud. However, the business of ecommerce which Jumia is a key player in Africa requires more saints to overcome. Unfortunately, the saints of ecommerce, the believers to make the market boom, are scarce: “Jumia learned the hard way that Nigeria, Jumia’s largest and most important market, is not an easy place to do ecommerce for plenty of reasons including logistics, poverty, …”
Let me leave it there until Jumia reports two consecutive quarterly earnings – that is where everything will begin. As it stands now, the IPO was just an event. One thing is painful – they have left Germany, calling Jumia now a Nigerian company. You can download the Citron report here.
Jumia Technologies AG JMIA, -18.79% shares sank 14.6% in Thursday trading after Citron Research’s Andrew Left, a noted short seller, announced in a report that they have the “smoking gun” that shows why Jumia equity is “worthless.” “In 18 years of publishing, Citron has never seen such an obvious fraud as Jumia,” the report said.
Citron goes on to highlight what it calls “material discrepancies” between the confidential investor presentation from October 2018 and what the company told the Securities Exchange Commission, including: inflating active customer and active merchant numbers by 20% to 30%; and that 41% of orders were returned, not delivered or canceled. “When a company markets to investors ahead of its IPO and then a few months later omits material facts and makes material changes to its key financial metrics to make the business seem viable, this is securities fraud,” the report says.
Citron also references media from Nigeria, Jumia’s biggest market, accusing Jumia of fraudulent activity. Jumia shares began trading on April 12, and soared 160% as of early this week. Shares were priced at $14.50.
Unless the numbers below are typos, Jumia has huge issues to deal with.
Jumia stock value
*The author is a short seller. He makes money when stock drops value. I do not know if he has shorted Jumia.
I was surprised when I saw the NYSE event of Jumia. A lot of things went through my mind. It’s just like UBER, Lyft and a couple others rushing to the market. None of these companies are reporting profits but are heavily funded having raised a lot of cash. So what has been sold is just on paper, worthless because you cannot earn from dividend payouts on these firms because there’s none to pay out, but the returns on the stock market…this is capitalism…but how does this differ from the sub-prime mortgage where derivatives are sold on the back of loans that are given to people with no means of paying the loans while hyping property values.
Jumia could be the Amazon of Africa, but Amazon was not built on debt and is a profitable business. I think we are importing business ideas into Africa that are not adapted for Africa. The poor credit system and lack of social support system that ensures that cash is in circulation and people purchasing power is loosely dependent on their social standing makes it imperative that we look at businesses differently and contextually. There cannot be another Facebook of Africa, and Jumia isn’t the Amazon of Africa by any stretch of imagination. They really need to re-jig their approach.
What’s best suited for Africa is many small businesses in every part of Africa providing focused and tailored services at close to a person-to-person level. This is why I foresee that organizations that can “break up” to small focus businesses and excellent agents network will hit the bullseye faster than a behemoth like Jumia.
By listing, they just simply created an exit strategy for some investors who needed to cash out. You need to understand the big scheme of things. A company that’s making loads of profit would be hesitant to list (e.g. MTN)…one that’s struggling will do everything to list on the stock market so as to get liquidity and create exit points for the investors that have been bleeding!