Jumia’s New Model Has Grown its Profit by 11% but Market Share Dips to Lowest this Year
Jumia’s New Model Has Grown its Profit by 11% but Market Share Dips to Lowest this Year
Jumia's quest for profitability has benefited from its shift in focus to everyday product sales.
According to the company's recently released Q1 Report, gross profit after fulfillment expenses reached €6.2 million, a whopping 149 percent increase over last year's €2.5 million.
Gross profit after fulfillment demonstrates that the business is profitable each time it makes a delivery.
GMV & Revenue Falls
However, the shift has had a negative effect on the Gross Merchandise Volume (GMV), which is a metric used to measure all goods sold on the platform. GMV decreased 13% year on year to €165 million in Q1 despite an increase in order volume to 6.6 million.
The decline in value can be attributed to the fact that household items are now more affordable than laptops and smartphones, which were previously the focus of attention.
The breakdown of GMV shows that phones and electronics accounted for 37% (€24.9) of GMV in the first quarter of 2020, up from 45% (€29.5) in the first quarter of 2019.
Another significant factor contributing to the decline in GMV is the local currency's depreciation against the Euro. The Nigerian Naira, Egyptian Pound, and Kenyan Shilling have all depreciated by 15%, 9%, and 19% against the euro over the last year.
These changes eventually resulted in a decline in Jumia's revenue. According to the company's Q1 report, revenue was €27.4 million, down 6.4 percent from €29.3 million in Q1 2020.
The market reacted negatively to Jumia's revenue decline.
Jumia's share price fell as low as $18.03 following this announcement, the company's lowest price this year. However, the price has begun to gradually recover, trading at $21.77 as of this writing.
Why Jumia is making Profit
Jumia previously lost money on each delivery due to inefficiencies, but that is changing now. A breakdown of the revenue reveals that despite the decline, Jumia earned a higher profit due to a variety of factors.
Jumia shifted its focus away from a first-party marketplace model in which it purchased and sold goods directly to customers and toward a third-party marketplace model. This resulted in a decrease in First Party revenue from €9.9 million in Q1 2020 to €6.5 million in the first quarter of 2020.
However, it resulted in a decrease in operating costs. For the first quarter, losses totaled €33.7 million, down 23% from €43.7 million in the same period last year.
Jumia has repositioned its business to focus on selling household products that are significantly less expensive to operate than high-ticket items such as smartphones.
Similarly, Fulfillment expenses decreased by 11% year over year to €14.2 million in the first quarter of 2021. Another reason for the decrease in expense is the shift from cost per package to cost per stop in the delivery pricing model.
On the plus side, the transition to a third-party marketplace model, which enables vendors to list and sell their products for a commission, increased Jumia's commissions by 8.8 percent to €7.6 million.
The company's annual active customer base has increased to 6.9 million, up 6.9 percent from 6.4 million in Q1 2020.
JumiaPay continues to Boom, Introduces SME Loans
JumiaPay's incredible growth has been fueled by its marketplace. The platform's Total Payments Volume (TPV) increased by 21% in the last quarter, from €35.5 million in the first quarter of 2020 to €42.9 million in Q1 2021.
According to the report, JumiaPay was used to complete 36.7 percent of total orders placed on the Jumia platform during the quarter. This is an increase from 35.5% in the first quarter of 2020.
This increase contributed to the total transaction volume increasing by 7%, from 2.3 million in the first quarter of 2020 to 2.4 million in the first quarter of 2021.
The sector's continued growth demonstrates that JumiaPay contributes to the platform's payment inefficiencies. Jumia has begun using its business and transactional data to assist SMEs in obtaining short term loans, leveraging its success.
Over 380 loans were disbursed to 291 unique sellers in Q1 2021 alone. This is a 90% increase over the first quarter of 2020.
In Summary, Jeremy Hodara and Sacha Poignonnec, Co-Chief Executive Officers of Jumia, believe that the company's strategy of expanding its exposure to everyday product categories will continue to yield positive results by increasing the marketplace's relevance for consumers.
However, if it wishes to boost investor confidence, it will need to increase volumes to match revenue. The negative market reaction to the company's latest earnings decline demonstrates that, while profitability is a primary objective, revenue growth is also critical.
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