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iAfrikan Daily Brief - JUMIA Deep Dive

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Dumelang, today's newsletter is longer than usual as I take a deep dive into JUMIA. I go back to when
 
May 12 · Issue #4 · View online
iAfrikan Daily Brief
Dumelang, today’s newsletter is longer than usual as I take a deep dive into JUMIA. I go back to when the first signs of its ambitions became clear. I also take you through some of the key points from my chat with Andrew Left of Citron Research, the company whose report has caused JUMIA’s stock to drop for two consecutive days on the NYSE. - Tefo Mohapi

History

Before JUMIA was the New York Stock Exchange-listed JUMIA Group as we know it today, it was JUMIA Nigeria, an e-commerce retail startup founded by Germany’s Rocket Internet which recruited Nigeria’s Tunde Kehinde and Ghana’s Raphael Afaedor as co-founders and co-CEOs. The two were joined by Rocket Internet’s Hendrik Harren who held the role of Managing Director. JUMIA Nigeria was then launched during May 2012.

Following the launch of JUMIA Nigeria in 2012, the Berlin-headquartered Rocket Internet decided to expand its offerings in Africa. Later in November 2012 Rocket Internet then launched another of its online platforms in the form of Hellofood, a food delivery service. Britain’s Joe Falter was recruited by Rocket Internet as co-Founder and CEO to lead the company in Nigeria. JOVAGO, an online hotel booking platform, was first launched in Nigeria during 2013. Poland’s Marek Zmyslowski was recruited by Rocket Internet to lead JOVAGO. During the same year, Rocket Internet launched Lamudi, an online real estate marketplace, in parts of Asia, Latin America, and in Nigeria. They hired Germany’s Paul Philipp Hermann as co-Founder and Managing Director, he was later joined by Kian Moini who was appointed CEO. They also launched an online peer to peer marketplace called Kaymu during 2013 in both Pakistan and Nigeria. In Nigeria, the new marketplace startup was headed up by Massimiliano Spalazzi. In 2014 online car marketplace, Carmudi, was launched, like other Rocket Internet companies, for Africa, it was launched in Nigeria with Stefan Haubold and Fritz Simons as co-Founders and co-Managing Directors. During 2015 they launched Vendito, a daily deals site, in Senegal, Nigeria, Tanzania, Ghana, Uganda, and Kenya. Sammy Ben Abla was the person hired to lead Vendito. Then, during 2015, they launched Everjobs, an online job listings website to cater for Africa after launching it in Sri Lanka and Myanmar. Everjobs was headed up by Ronald Schuurs.

There was also Easy Taxi, a ride hailing service, which was launched in Nigeria but later shut down and Zando (retail fashion e-commerce store), the only venture JUMIA started in South Africa.

As you can see, there were many unrelated startups which Rocket Internet launched in Africa before they all were consolidated under one brand, JUMIA (note, in other markets in Asia and South America, the brands remained as they originally were). Another interesting thing which you will pick up is that Rocket Internet’s business in Africa has a lot to do with Nigeria as almost every single one of their startups launched in Nigeria as the (hopeful) launchpad into the rest of Africa.

Behind the scenes of all this, was Africa Internet Holdings. Which was later named Africa Internet Group before being finally named JUMIA Group. This company, was announced in 2012 as a Rocket Internet company (with investment from Millicom as well) to target Africa as a market. Running it was Jeremy Hodara and Sacha Poignonnec as co-Founders and co-CEOs who were effectively the custodians of Rocket Internet’s investments in Africa.

On 29 March 2019 JUMIA Group listed on the New York Stock Exchange under the ticker symbol JMIA. The Rocket Internet founded e-commerce company was branded as "The 1st African Tech startup" to list on the NYSE and also the first "African unicorn" to surpass a valuation of $1,1 billion. 📷 JUMIA banner outside the NYSE building on 29 March 2019.
How To Launch A Rocket

At this stage, like any other startup, most (if not all) of the Rocket Internet startups mentioned above were failing to gain traction in Africa and if you look in each country they launched in and in some cases would exit from, they were never a leader in their respective verticals. Not only that, it would also emerge as part of Rocket Internet’s Q1 2016 financial reports, JUMIA Nigeria was the “worst performing of the whole lot” of Rocket Internet startups.

It is also during 2016, after receiving investment from France’s AXA, South Africa’s MTN and Goldman Sachs that the two AIG “founders” announced they would consolidate all of the Rocket Internet startups in “Africa” (which was mostly Nigeria because despite trying, they failed to really gain traction in any other countries in Africa bar just over 14 of them). After this brand consolidation, to the best of all available records and my knowledge, JUMIA didn’t (one would argue, couldn’t) raise any more Venture Capital money and were now sitting with millions in dollars raised, loss making companies now operating as one company but not really one company.

It’s at this point you realize, in hindsight, that after consolidation, JUMIA was signalling its intention to be viewed as the “Amazon of Africa”. However, the problem, as its publicly available financials (via Rocket Internet) demonstrate, it wasn’t anything like Amazon. Furthermore, a few years later its main competitor in Nigeria, Konga, saw Naspers sell its shares in it citing that it didn’t see it growing at the rate expected, only for Konga to be sold in 2018 for what was rumored to be a huge discount. Before Konga was sold several e-commerce sites shutdown in Nigeria, not because of JUMIA crushing them in the market, but simply because the market was not responding to e-commerce as expected in Nigeria.

Given this ambition, there were, as I mentioned in a previous newsletter, practically two options left for them: hope someone bigger interested in e-commerce in Africa buys you, or an IPO. The rest is history.

Andrew Left explains Citron Report

Before I close off with my own thoughts on whether JUMIA is a fraud, or even on a slightly less harsh wording, engaging in overstating and understating their numbers to entice investors, here’s some quick feedback from my chat with Andrew Left, Founder of Citron Research, who released this report that led to JUMIA shares dropping by close to 30% for 2 consecutive days on the NYSE. Many have highlighted Andrew’s history as a short seller, the number of reports he has gotten wrong, and that there is a change.org petition requesting he be investigated. Unfortunately, or fortunately (depending who you ask), short selling might be deplorable to some but it is legal. Also legal is releasing research reports expressing your opinion why a stock should be sold. As I put it to some people “financial analysts do the same thing every day except they do it in fancy and measured English accompanied by sophisticated charts.”

For transparency purposes, I asked Andrew whether he is short on JUMIA shares and currently holds a short position JUMIA shares. He was very clear, he is short on JUMIA. Some have pointed to this as proving he has a motive to seeing JUMIA share price crash (hence the report) and that is fair. However, the fact that Citron Research is short on JUMIA and that JUMIA are supposedly misrepresting key statistics to investors are mutually exclusive. They can both co-exist and possibly both be true. (well, he holds a short position, it’s just a matter of establishing evidence of the malpractice)

My next question to him was based on the evidence he presented and claimed to have. I was keen to hear especially if it was only circumstantial evidence or old internal documents and how/from who it was received. Andrew explained that it included documents from sources he couldn’t name but ultimately said he would be releasing a second report on JUMIA that would divulge more information. Again, at this stage, perhaps stating fraud is a bit harsh in the absence of any legal judgement but on the other hand I understand where he’s coming from, it’s in his best interests to attract as much negative attention to JUMIA as possible in the hope of swaying investor sentiment to selling.

There’s been a lot of chatter on social media about how the report is exaggerated and doesn’t reveal much on one side of the argument that is PRO JUMIA, however one piece of information Andrew mentions and JUMIA have not responded to is about returned orders. According to evidence by Andrew, 41% of JUMIA orders are returned, not cancelled or delivered, something they omitted from their SEC filing before listing. This, for me, is key. In that it signals a possible underlying bigger problem with JUMIA, and a possible angle from which the SEC can start investigating JUMIA for misrepresenting information to American investors. Already, as we speak, there are over 10 law firms in America which have issued statements asking anyone who has invested in JUMIA shares to contact them, as Andrew put it, the misrepresentation of the returned orders numbers “shows the quality and sustainability of business.”

Andrew believes, or wants (or both), the JUMIA stock price to go down as close to possible to zero based on that, in his words “this whole scheme was orchestrated to dupe US investors.”

Is JUMIA a fraud?

The biggest problem, and hopefully this will be clarified on the JUMIA Q1 earnings call which I will be on on Monday 13 May 2019, is that JUMIA’s reporting to date has not shed light on things like what it labels an active user/customer, performance of its operations in individual countries, and how it defines other key business metrics.

In the spirit of being fair, having reached out to JUMIA to no avail, I’ll have to wait until after hopping on the earnings call on Monday before I can conclusively tell you my take on whether JUMIA is a fraud or not.

However, to date, there are at least 10 American law firms who have issued notices that they are looking for JUMIA public shareholders who are interested in a class action lawsuit against the e-commerce company. This still doesn’t mean much given the long process of preparing a class action lawsuit, but…🤔

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Until the next newsletter on Monday, cheers!




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