Will the Jumia share price benefit from a new strategy in upcoming earnings?

The Jumia [JMIA] share price had traded below the $10 mark for most of 2020 but since the start of October, the stock has found itself on significant uptrend.

Between 1 October and 10 February 2021, the Jumia share price accelerated by more than 719% to close at $65.51, fuelled by the demand for e-commerce stocks triggered by the COVID-19 pandemic. However, with that trend cooling, the Jumia share price has plummeted over 67% to close at $21.27 on 6 August.

The Jumia share price had seen a brief bounce back in March, which was quickly extinguished after a secondary stock offering to raise $400m. Despite being the largest e-commerce platform in Africa, the Jumia share price has been continually weighed down by concerns over profitability.

But with the company having shifted strategy and the scale of opportunity – i.e. being the dominant e-commerce player across a continent – the Jumia share price could well be worth a look in the run up to second-quarter earnings.

Why should investors care about Jumia share price?

Jumia’s path to profitability looks uncertain, but that doesn’t mean it's not getting some attention from hedge funds and institutions.

Jim Simons’ Renaissance Technologies and other notable hedge funds have recently added to their Jumia positions. Debasis Saha, writing on Insider Monkey, notes that 16 hedge funds held Jumia shares at the end of March, up from a previous 13. Renaissance Technologies held $37.5m worth of stock in the fourth quarter, just edging out Citadel Investment Group’s $36.2m worth of stock.

Baillie Gifford & Co has the largest institutional position on Jumia, holding 9,619,791 shares at the beginning of August, according to data from Fintel. The next biggest holding comes from Vanguard’s International Growth Fund [VWILX], which held 6,724,836 shares at the end of February. In third position is Susquehanna International, which increased its holding in Jumia by 127.65%, bringing the total value of its investment to over $57m. Morgan Stanley [MS] and Fidelity round out the top five with over a million shares each.

What could move Jumia share price post-earnings?

Any Jumia earnings update is all about whether the retailer is edging towards profitability. In the first quarter of the year, Jumia posted gross profit of €20.4m, up 10.9% from the 18.4% growth seen in the same period last year. Adjusted EBITDA loss narrowed 24% year-on-year, coming in at €27m compared to the previous quarter’s €35.6m. While that’s good, investors will want to see further evidence that it is reducing its cash burn.

Jumia has been pivoting away from first-party sales to being a marketplace for third parties. But with a change in strategy has come a decline in revenue. In the first quarter, Jumia made €27.4m in revenue, a 6.4% year-on-year decline. Marketplace Commissions and fulfilment revenue made up the bulk of sales, but it was advertising revenue that saw the biggest growth rate, up 36% year-on-year.

JumiaPay is another area of focus with the online payment method seeing TPV increase 21% from €35.5m in the first quarter of 2020 to €42.9m in the first quarter of 2021, with the number of transactions increasing by 7% in that time.

“This was in line with our strategy to undertake fewer sales on a first-party basis as we focus on running an asset-light marketplace model where third-party sellers offer consumers an expanding range of products and services,” Jumia said in its first-quarter results.

The contrarian view is that by focusing on profitability, growth could be limited – especially cracking a market as big as a whole continent, as Muslim Farooque points out on Investors Place.

“[Jumia] needs to build its presence in new markets early on, which requires substantial investments. Its Q1 order count grew by just 3% on a YoY basis. If it continues on this path, growth is likely to stall despite the mammoth opportunity in Africa,” he said.

For Farooque, Jumia is overvalued with a market cap north of $2bn until it puts more focus on revenues and investing rather than ‘cutting costs and streamlining its operation’.

When is Jumia reporting Q2 earnings?

10 August.

What are analysts expecting?

Wall Street is expecting Jumia to post a loss of $0.43 a share, narrowing the $0.61 loss per share seen in the same quarter last year. Revenue is pegged at $42.34m, up a slight 2.6% from last year’s $41.27m haul. Full year revenue is pegged at $185.06m, up 9.9% year-on-year, rising to $233.78m for the full year 2022, a 26.3% year-on-year gain.

Can Jumia beat expectations? In the last four quarters, the e-commerce retailer has done so. In the last quarter, Jumia delivered a loss of $0.14 a share, thrashing forecasts for a loss of $0.44.

Among analysts tracking the stock on Yahoo Finance, the Jumia share price has a $28.20 price target, hitting this would see a 35.6% upside on Friday’s close.