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…🤔