Kampala. Africa-focused e-commerce firm Jumia is struggling to dispel allegations that it “fudged the numbers” to paint a picture of a stable business prior to listing on the New York Stock Exchange.
Jumia, which has operations in Uganda, has taken a beating since listing on the NYSE last month, after a report by Citron Research accused the company of fraud.
The accusations have been such severe that they have forced a nosedive in the company’s share price by more than 50 per cent.
The report came at a time when questions had been lingering on whether Jumia can be considered a truly African entity not only because of opting to list on the NYSE but also due to its ownership structure that includes incorporation in Germany, headquarters in Dubai and a central tech team based in Portugal.
Riding on a tagline of “100 per cent African” and often seen as the “Amazon of Africa,” Jumia has operations in 14 countries with its biggest markets being Nigeria, Kenya, Morocco and Egypt.
In its report, Citron estimates that in order to raise money from investors, Jumia inflated its active consumers and active merchants figures by 20 to 30 per cent and failed to make disclosures that 41 per cent of orders were returned, not delivered, or cancelled.
“Assuming 41 per cent of orders were returned, not delivered, or cancelled in 2018, this implies that almost 30 per cent of orders were cancelled in 2018. Since Jumia primarily sells consumer electronics, which should not have this high cancellation rate, it reeks of fraud,” says the report.
The report also indicates that between 2015 and 2018, Jumia made little progress in its core business with revenues declining from $145m to $131m while adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) went from $161m to $150m.
Of importance to note though, is that despite calling Jumia a “smoking gun” and igniting panic among investors, Citron founder and report author Andrew Left has repeatedly been accused of causing alarm among ordinary investors.
In 2016, Hong Kong Securities and Futures Commission accused Mr Left of spreading false information about a Chinese company, Valeant Pharmaceuticals International Inc, and went on to ban him from trading in the country for five years.
The revelations in the report have had adverse effects on the firm’s share price which debuted at $14.50 on the NYSE after it listed through an initial public offering.
While the stock peaked by more than 70 per cent to hit $46.99, it has since come crumbling, trading at $25 by close of trading last week.
The claims by Citron have prompted US investments fraud investigators Holzer & Holzer to launch a probe into the operations of Jumia.
“Holzer & Holzer investigating whether certain statements made by Jumia complied with federal securities laws,” said the investigators.
Jumia’s woes are mounting after New York-based law firm Bragar Eagel & Squire, filed a case against the company over claims it made materially false and misleading statements.
“The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements about Jumia and its business,” said the lawsuit filed on behalf of investors who bought the company’s shares. The US Securities and Exchange Commission has, however, remained silent on the issue.
Jumia, through its investment banker Citigroup Global Market Inc, is struggling to put out the fire ignited by Citron, maintaining its business remains sound and has the ability to deliver its promises to investors.
“For investors, we believe the most important factor remains the company’s ability to deliver on its guidance, starting with Quarter One,” said Citigroup.
The rider, however, was that Citigroup was maintaining its neutral/high risk rating on Jumia shares, reflecting the significant growth prospects of the company balanced by the inherent volatility of operating in early stage e-commerce markets.
Innovation and talent across Africa
At the time of Jumia’s listing last month, Mr Ron Kawamara, the Jumia Uganda chief executive officer, said the listing was a milestone for technology start-ups.
“The listing shows that there is innovation happening in Africa and a lot of talent on the continent,” he said, noting that through listing the company will be seeking to build trust and credibility with customers and potential partners such as top brands globally who might now take an interest in collaborating with Jumia.
According to Jumia’s Quarter One financial results released last week, its gross merchandise value, the total amount of goods sold over the period, posted a 58 per cent increase to $269.3m from $170.5m over the same period last year.
Despite the increase in sales, operating losses widened to $50.9m from $38.4m with negative Ebitda increasing to $44.3m from $33.8m.
“We believe that Jumia is increasingly relevant for consumers and sellers in Africa. We remain focused on our core operations, driving consumer adoption and engagement on our marketplace,” Mr Sacha Poignonnec, the Jumia co-chief executive officer, said.
In the prospectus presented prior to the listing, Jumia admitted it has incurred significant losses since inception and there is no guarantee that it will achieve or sustain profitability.
Since inception in 2012, Jumia has accumulated more than $1b in losses.
However, the company believes - that considering the e-commerce market in Africa is still nascent – it is well positioned to grow.
“We intend to benefit from the expected growth of e-commerce in Africa through the investments that we have made and the extensive local expertise that we have developed,” said the firm.
Jumia projects the growth to be driven by the impressive economic growth on the continent forecast to average 5.9 per cent, over the next five years, massive investments in infrastructure development, large, fast-growing and young populations and increasing urbanisation.
By the end of March, the company had 4.3 million active customers, up from three million a year ago.