Jumia’s [JMIA] share price has had an unpredictable 2020 so far. While the stock is currently up 56.97% year-to-date, it has seen a high degree of volatility. Starting the year at $6.60, the stock hit a year-high of $8.90 at the end of January. This peak was followed by a calamitous fall to $2.10 on 20 March, as mounting losses hurt investor confidence.
Since that nadir, Jumia’s share price has ridden the coronavirus-triggered boom in e-commerce stocks. It has not been plain sailing, however, and every price surge has been followed by huge sell-offs, including a 25.7% drop within one week between 8 June’s open and 11 June’s close. For traders, the key question is whether or not this volatility will translate into longer-term gains.
Is Jumia's share price a bargain?
Despite Jumia’s share price turbulence, the company delivered a solid Q1 update earlier this year, suggesting it was finally getting costs under control. In the results, Jumia saw its adjusted EBITDA loss come in at €35.6m. As the company noted, this was a 10% year-on-year drop and its lowest level in the past six quarters. Promisingly, the reported €18.4m gross profit is a marked improvement from the €0.1m seen in Q1 2019.
Jumia’s share price also benefitted from a huge jump in demand for its services during the coronavirus outbreak. Q1 saw 6.4 million annual active consumers, up 51% from the previous year, while orders rose 28% to hit 6.4 million. Revenue from its Marketplace platform came in at €19.1m, a 21.8% jump on the previous year, but total revenue fell 6.9% to come in at €29.3m.
It is worth noting that, despite Q1’s drop in revenue, Jumia is reducing its losses. This could suggest that the company is on the road to profitability and the current share price is good value for bargain hunters.
“We believe the COVID-19 pandemic proves that e-commerce has a key role to play in helping consumers safely access essential goods and providing an efficient distribution channel for brands and sellers, at a time when offline channels are disrupted. We are more than ever confident about the relevance of Jumia and the gradual adoption of e-commerce by both consumers and sellers," commented Jeremy Hodara and Sacha Poignonnec, Co-Chief Executive Officers of Jumia.
“We believe the COVID-19 pandemic proves that e-commerce has a key role to play in helping consumers safely access essential goods and providing an efficient distribution channel for brands and sellers, at a time when offline channels are disrupted. We are more than ever confident about the relevance of Jumia and the gradual adoption of e-commerce by both consumers and sellers” - Jeremy Hodara & Sacha Poignonnec, Jumia's Co-Chief Executive Officers
Why is Jumia’s share price so volatile?
One explanation for Jumia’s share price volatility is that the market simply has higher expectations for the company’s revenue growth than it is currently delivering. As Simply Wall Street points out, while the stock has seen losses this year, it has in fact notched up triple-digit percentage gains over the past 90 days. This suggests that recent sell-offs are overdone.
Heavy losses in the underlying business are an important factor to consider when discussing Jumia's share price, however. In 2019, Jumia lost €226.69m, an increase from 2018’s €170m loss. The company also burned through €316.83m in cash in 2019, which equates to 197.51% of its revenues. While most start-ups sacrifice profitability for revenue generation in the early years, Jumia has been operating for more than a decade.
Jumia's 2019 loss
So, time to buy Jumia?
Shareholders will be looking to second-quarter numbers to see if Jumia can continue to reduce losses. Any sense that costs are being brought under control could give investors renewed confidence in the stock.
However, those thinking of buying into Jumia need to weigh up the risks. Jumia’s share price carries an average $4.51 price target from the five analysts tracking the stock on the Financial Times. Hitting this would see a 56.5% downside on Jumia’s share price (through 22 July’s close).