Stock Market Analysis

Jumia’s share price: What to expect in Q3 earnings

Jumia’s share price has had a volatile three months. 

This article was originally published on Opto – Understand What Really Moves Markets.

Having hit a year high in August at over $21, the stock quickly lost most of those gains, trading in the $7 to $9 range for much of September. However, October and early November have seen Jumia’s [JMIA] 

share price soar over 134.5% (as of 6 November’s close). For investors, the question is whether or not the ‘Amazon of Africa’ will benefit from the prevailing trend to ecommerce. Jumia has an enviable addressable market, with little in the way of rivals, but it has been plagued with an inability to turn a profit. 

For Jumia’s share price to move higher post-earnings — and enjoy some degree of stability — the company needs to show it is getting its costs under control.  

What to look out for in Jumia’s Q3 earnings

Jumia’s second quarter results were a mixed bag. Active customers hit 6.8m, a 40% increase on the same time last year and orders came in at 6 8m, an 8% increase on the previous year. Disappointingly, GMV came in at €228m, down 13% from last year, with Jumia attributing this to reduced promotion of lower value products.

While Jumia continued to make progress in becoming a more efficient operation, it still racked up substantial losses in the second quarter. Adjusted EBITDA losses came in at €32.9m, down 26% from the same period last year. Overall operating losses totalled €37.6m, down 44% from last year. Jumia said that it was hoping to reduce its “adjusted EBITDA loss in absolute terms in 2020 compared to 2019”. Being on track to meet this goal will influence how Jumia’s share price performs post earnings.

Shareholders will also be interested in how the ecommerce company is operating in the coronavirus pandemic, which heavily impacted Jumia’s second quarter results. In Nigeria and South Africa, Jumia faced significant disruption due to restrictions in movement, with Jumia Foods in particular hurt by the closure of restaurants, which only started to open back up in mid-May. 

“[The] COVID-19 pandemic may further exacerbate such effects. As a result, we currently expect continued GMV softness over the course of 2020, with better Order and Annual Active Consumers growth, on a year-over-year basis,” said Jumia in a statement.

Another area to watch out for is Jumia’s digital payment platform, Jumia Pay. Last quarter, Jumia Pay processed 2.4 million transactions, worth €5.3m, a 36% increase on the 1.8m transactions processed in the same period last year. As the shift to online and ecommerce accelerates due to the pandemic, this could see Jumia’s share price and profits rise. 

How should investors trade Jumia’s share price?

Investing in Jumia is a high risk, high reward play. According to David Moadel, writing on InvestorPlace, Jumia’s share price is capable of big moves in a single day. Moadel points to October’s last day of trading, when Jumia’s share price dropped 13.38%. 

The yo-yo nature of Jumia’s share price is not just consigned to intraday trading, however. On 1 July, the stock opened at $5.55 and by the start of August it had hit a year-high of $21, before dropping $9.50 by the end of the month. While that’s still higher than Jumia’s share price at the start of the month, traders will have to judge when to call the top of the fast-moving stock. 

Longer-term investors might hope that Jumia can finally fulfil its promise of being the Amazon of Africa. If Jumia can demonstrate that it is truly on the path to profitability in upcoming earnings, the stock could be a potential Buy. Yet, traders might be best advised to wait for a dip in Jumia’s share price. Among the analysts tracking the stock on Yahoo Finance, the stock has an average $12.53 target price target, which would represent a 33.9% downside on the current share price through 6 November’s close.

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