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April 14, 2019, 10:27 a.m. EDT

5 things about newly-public African e-commerce site Jumia

Africa is growing, but Jumia faces risks including political instability and an underdeveloped logistical infrastructure

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By Tonya Garcia, MarketWatch

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Here are five things to know about Jumia before its IPO:

The company has never made a profit

Jumia generates most of its revenue from commissions from third-party sellers. Since its founding, the revenue the company has generated has not been enough to cover operating expenses, with losses in 2018 totaling €170.7 million. Accumulated losses as of Dec. 31, 2018 totaled €862.0 million.

“We expect that our operating expenses will continue to increase as we intend to expend substantial financial and other resources on acquiring and retaining sellers and consumers, growing and maintaining our technology infrastructure and sales and marketing efforts and conducting general administrative tasks associated with our business, including expenses related to being a public company,” Jumia said.

It has no plans to pay a dividend ‘in the foreseeable future’

Like many newly public companies, Jumia is not planning to pay a dividend any time soon, which means investors must rely on stock price appreciation for returns.

“We intend to retain all available funds and any future earnings to fund the development and expansion of our business,” the prospectus said.

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Most of the goods sold on Jumia come from third-party sellers

About 90% of the items sold on Jumia in 2018 came from third-party sellers, which puts the onus for housing inventory on those sellers, but also puts the company at risk of any issues that the third-party might engage in, like fraud.

Jumia sells the other 10% of items directly “in order to enhance consumer experience in key categories and regions.”

Jumia Logistics provides delivery and pickup via a network of leased warehouses and drop-off stations, and, in certain markets, Jumia has its own delivery fleet. In 2018, the company handled 13.4 million packages.

JumiaPay and Jumia One help with online transactions and payments on a continent that still relies heavily on cash. More than half (54%) of the orders placed in Nigeria and Egypt during the fourth quarter were completed with JumiaPay. That may become part of the business in the future.

“As of the date of this prospectus, we do not monetize our payment services,” the company wrote. “In the future, we may decide to do so, including opening up our payment services to third parties.”

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Jumia operates in markets that are underdeveloped and politically unstable

Jumia is operating in emerging African markets that are still developing logistics, delivery and digital payment capabilities. Delivery can be too expensive or too time-consuming to compete with traditional retailers, and cashless payment is challenging.

In addition, some of its markets, such as Egypt, still experience periods of political instability. Governments have a history of making dramatic policy changes, such as price controls, currency devaluations, or mandatory wage increases.

Terrorism and violent crime is also a risk, which could restrict delivery and fulfillment. In 2018, Jumia said one of its warehouses in Kenya was robbed of about €500,000 worth of merchandise. Boko Haram could pose a threat in Nigeria, where it has disrupted the economy in the northeast of the country. And al-Shabaab, a Somalia-based terrorist group, executed an attack in Nairobi in January, posing a potential problem for Kenya.

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It has to contend with failed deliveries and late collections

Many customers, including those that don’t have a bank account or don’t trust online payments, choose to pay upon delivery. The customer has to be home to accept the package. Failure to complete a delivery is a continuing problem, with 14.4% of GMV in 2018 either a failed delivery or return. Delivery verification is also a problem.

“For example, in Kenya, where approximately 95% of our consumers paid in cash or with cash equivalents on delivery in 2016, we discovered in early 2018 that €720,000 of cash payments remained uncollected in 2016, the large majority of which was never subsequently collected,” the prospectus said.

Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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