The easiest person to bill (Nigerian slang for unnecessary demand for money from a person as though you gave them the money) is a person you have a clear picture of how much he/she earns. The easiest company to analyze is the business that has most of its financials in the public domain.
As one of the poster boys of African entrepreneurship, Jumia due to its public nature, is one of the easiest technology company operating out of Africa to analyze.
There are many reasons I should want Jumia as a business to succeed; one is that I do not short the stock – Jumia stock has been down 71% since its February 2021 high of $65.51. In other words, if I had shorted N700,000 worth of Jumia stock in February, I would have about N497,000 in profits by now (I should probably have shorted the stock). Secondly excluding Paystack’s US$200 million buyout by stripe, and Flutterwave’s recent US$170 million series C, the major business representing Africa on the NYSE (Biggest Stock Market on the planet) is Jumia. Think of it this way – if the New York Stock Exchange was a parliamentary building, Jumia would be the senator representing West Africa (and probably the whole of Africa), If Jumia is the constituency representing the whole of Africa on the NYSE, that constituency may not necessarily be doing too well.
STORY STOCKS AND NARRATIVES
Jumia is a story stock, a very good one as at that. A lot of people call Jumia the Amazon of Africa, I personally think that’s a wrong description, a much clearer description for Jumia would be the Tesla of Africa.
Jumia and Tesla are very similar in design – they are both built around narratives; Tesla’s mission is to accelerate the world’s transition to sustainable energy and all of that. Jumia is the second chance for investors who were either too young when Amazon was founded or weren’t bold enough to risk a couple of thousand dollars on a bald-headed 30-year-old Princeton Graduate (Jeff Bezos) who somewhat believed he could change the world. Tesla makes 9.5 million fewer cars than Toyota, was only profitable last quarter because of Emission credit sales (ZEV) and Bitcoin profits, and is now facing stiff competition from brands like Mercedes Benz, BMW, Porsche, Rivian, and a host of other car manufacturers who are aggressively pushing into the EV (Electric Vehicle) space – but that doesn’t matter, The Markets think otherwise, and otherwise means that Tesla at 509,000 cars per year is worth more than Mercedes Benz, BMW, Volkswagen, GM and Ford combined.
Jumia on the other hand is very similar – Jumia is deeply unprofitable (worse now since they decided to switch strategy), has been bleeding GMV for the past couple of quarters, and is facing intense competition from an adversary they know very little about (getting to this). Jumia’s narrative is still strong – the Amazon of Africa, building eCommerce for the next 1 billion and all of that, but if Jumia is to take its position as the herald of African entrepreneurship, it may need to take a very different stance.
CENTRALIZED AND DECENTRALIZED ECOMMERCE
There are broadly two kinds of eCommerce; Centralized and Decentralized eCommerce. In centralized eCommerce, one player owns the core platform where business is being transacted and will usually keep some kind of fee or cut from transactions occurring on its platform. When you think of Centralized Ecommerce, you think Jumia, Amazon, Mercado Libre, etc. In Decentralized eCommerce, no one player (technically) owns the platform, and transactions are occurring by different players through different platforms and through different means.
According to Statista, eCommerce in Nigeria is expected to see 11.78% growth between 2021 and 2025. Jumia is not growing at that rate, that growth rate is primarily in the decentralized eCommerce market, and that is the biggest threat to Jumia’s business.
To get a clear picture of what goes on in the decentralized market, Gokada announced it had done over a US$100million in annualized transaction value as of June 2021, to be clear, amidst the troves of 5 bike Logistic companies and the likes scattered around Lagos (If you drive around Computer village and Lagos island you would probably get this), Gokada, although a formidable player may not necessarily even be the largest market player.
A lot of money is moving around – from my dearly beloved Chicken Republic pushing orders to buyers, to your Whatsapp contacts that have turned Whatsapp status’ into Balogun Market, to even those buying hair, watches, and wears via Instagram. The big problem is that Jumia is not capturing a huge part of that value, so while Jumia probably taught most players how to party (introduced the scaled eCommerce approach), they were not invited to the party.
CUSTOMER EXPERIENCE AND CENTRALIZED COMMERCE
There’s a reason Amazon is laser-focused on consistently creating the best customer experience for their users at all times; the core value proposition of Centralized eCommerce is trust and quality – trust that while the guy selling to you on Whatsapp can literally take your money, run away and block you (this happens) – neither Jumia nor Amazon will do this, and quality that while any seller on Whatsapp can overcharge me for a product that is below standard, neither Amazon nor Jumia MAY do this. The issue is that while Amazon has focused laser hard on both making sure that those two factors are in place and having strong customer care fall back plans the times they aren’t, for some reason Jumia hasn’t been able to consistently deliver on this and this has affected their brand equity and their true value proposition as a centralized eCommerce Platform.
Anyone who has tasted corn flakes may not be in a hurry to soak Garri (I should probably patent that) – also anyone who has tasted the ease and simplicity eCommerce brings may not be in a hurry to push that experience away. If Jumia as a centralized platform cannot satisfy the need, nothing really stops people from adopting decentralized platforms regardless of the risk. According to Statista, more than 34% of all eCommerce transactions are in the fashion eCommerce space – that amounts to more than US$2 billion in annual transaction value – all those transactions aren’t occurring on Jumia’s platform.
The Decentralized eCommerce market led by Whatsapp and Instagram sellers as against popular perception is not a pay-on-delivery market. While instances of scams and the likes may not be rare, this market isn’t really a pay on delivery market – users make transfer payments and trust sellers to deliver goods at the time appointed, people even tie up their money for weeks to preorder for goods that are being imported from China and the likes.
So while data and on paper claims of a growing eCommerce market are rife, Jumia may not necessarily be automatically capturing that growth.
JUMIAPAY
The two most dangerous things to do in 2021 are the Milk Crate Challenge (no joke, you should get health insurance before you get in on this) and starting a mobile payment application (a mobile app whose core value proposition is paying bills and P2P transfers). Among the plethora of payment options out there, competition in this space is extremely fierce – bank applications have the advantage of being native, Remita is one of the best mobile payments solutions on the app store (shameless plug), Quickteller has first-mover advantage, Barter has a (force you to adopt) strategy, and OPay is now eating SoftBank money.
While JumiaPay has the core advantage of a strong eCommerce double play to draw adoption to the app – evidenced by the more than 1 million downloads on the Google Play store, the truth is downloading an application, and regular adoption are two different things. The first can be hyped, the second is based on true fundamentals.
To be clear, I don’t think JumiaPay is a bad app (any app that gives you the exclusive right to buy an iPhone 12 for N5,000 cannot be a bad app), I do however doubt its ability to retain users considering that some of these users have their personal bank apps, Remita’s mobile app (second shameless plug), OPay or other options. They could log in for the promo’s and all, but regular adoption and being able to displace them from the mobile payment solutions they frequently use may not be as easy as it seems.
OPERATING SYSTEM STRATEGY
As a player in the technology space, you can either be a product on the market, or the platform all the other products are building on. Products make more money per sale, but Platforms make way more sales than products.
One of your core positioning strategies as a business should be to find a way to position yourself as a platform provider rather than just a product player. Spotify will forever be angry that Apple collects a 15% TAX for subscriptions acquired through the App Store. This however changes nothing, businesses are not built on emotions or sentiments, so Spotify can be angry all they want, as long as Apple continues to own the App Store platform, they will continue to pay taxes to Cupertino.
In my opinion, Jumia has the unique opportunity to position itself as the operating system for Logistics in not just Nigeria, but Africa at large. Jumia already has a strong logistics network, strengthening and reinvesting in that network could help it capture more value in that space and position it as a market leader in the logistics space.
While Lagos is filled with Dispatch riders, the market may still be a relatively ripe one to take, considering the fragmentation of the market and the obvious lack of quality among several dispatch service providers, especially the smaller ones.
Another core opportunity for Jumia is the lack of a proper interstate delivery system. People in decentralized eCommerce may already have solutions for intrastate delivery, but sending goods to other states is usually not cost-effective or convenient. Jumia already has a nationwide logistics network it can ride on to simplify the logistics process for players. The reasoning here is that if you can use a solution from Jumia to push logistics into other states in a simple and efficient manner, then why not use them for intrastate delivery – and while you’re at it, you could refer a friend.
Go To Market Strategy
BUY GOKADA: Jumia presently has about US$700 million in net cash reserves, Gokada’s last venture raise was a US$5.3million raise in 2019 (when it was still in ride-hailing). If we imagine that represented a 10% stake and add a couple tens of millions to the top of the stack, Gokada should probably be worth around US$70 – 80 million. Buying Gokada is buying an already profitable company with a nice brand identity, great technology, and experienced hands that probably won’t bleed you to death.
Buying a US$70 million company definitely needs more than just five lines of analysis to conclude on, I however feel that that market approach may just be a step in the right direction to position Jumia as a market leader in both the intrastate and interstate logistics space.
CONCLUSION
Jumia is a great business; repositioning its plan to focus primarily on becoming the operating system for logistics In Nigeria and in Africa is a strategy I think will not only go down well with its investors but will give the business a much more realistic path to profitability.
Inspired By The Holy Spirit
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