There is a “rumour” that Jumia may spin off JumiaPay. Possibly, it can unlock more value by doing so. Of course, Jumia is a public company which makes spinoff really hard. Unless it can list JumiaPay on the exchange, the vehicles are limited. You do not break a NYSE traded company like akara and moi moi. Yet, let us do the academic analysis.
A LinkedIn user wrote thus:
I commented – and below, I am expanding that comment.
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I am not sure Jumia has a lot of “trusts” in the financial “trustbank” to play that game. I do not believe that it was fraud that the management did not know. Nigeria is a very small economy for $18m to be under the table without top management knowledge. But if people do still believe Jumia, the spinoff will unlock more value for shareholders. JumiaPay with about 5 million “users” [the estimated Jumia users] will be one of the largest non-bank fintech players in Africa. Largely, JumiaPay can get at least $200m valuation there. Currently, the fintech unit is largely discounted by markets in the NYSE – few care about that JumiaPay component, mainly focusing on the ecommerce GMV, PL, etc.
So, spinning off JumiaPay will be a win for Jumia. It can help it get more value. Think of how PayPal ($125 billion market cap) has become bigger than eBay ($33 billion market cap). I can tell you that JumiaPay will be bigger than Jumia in Africa.
Marginal cost will continue to affect Jumia (i.e. the ecommerce business) ability to become profitable. JumiaPay will not have that problem. Of course JumiaPay will have to compete in the world of Paystack, Flutterwave, etc. If Jumia spins off JumiaPay, on day 1, JumiaPay will have a really great client in Jumia and will be making money. That is why it will be a great business – makes money and becomes profitable fast.
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I don’t know who advises Jumia, and what Jumia’s real purpose as corporation is.
High valuations are usually pinned to growth potentials and market dominance, profitability comes afterwards.
If JumiaPay is successful as payment platform, it should be able to engineer profitability for Jumia, without needing to spin off; same way AWS does for Amazon.
It doesn’t require large literature, but if JumiaPay is a great payment platform, then it must show on the percentage of users who use it, without having any other relationship or connection with larger Jumia.
Some things don’t require too much thinking or manoeuvring; just run the numbers, and you will see where you belong…
Actually Paytech is different. JumiaPay will be seen as Jumia’s just like PayPal struggled under eBay.