JMIA - Jumia stock price melts down as forex headwinds continue

2023-10-05 20:08:00 ET

Jumia (NASDAQ: JMIA) stock price continued its freefall as the company continued facing numerous headwinds. The shares retreated to a low of $2.52 on Thursday, ~50% below the highest point this year and ~96% lower than its all-time high.

Headwinds remain

Jumia Technologies, the so-called Amazon of Africa, is facing numerous headwinds as key countries in its ecosystem go through major headwinds. One of the biggest challenges, which I wrote about here , is related to the forex market.

The surging US dollar has led to major challenges among many African countries. For example, Kenyan shilling has crashed by over 50% against the US dollar since 2020. Similarly, the Nigerian naira has plummeted to its all-time low.

Other African currencies like the Nigerian naira have done worse. This situation will likely worsen as US bond yields surge and as the Federal Reserve maintains its hawkish tone. SevelaL Fed officials like Mary Daly and Loretta Mester have sounded supportive of another 0.25% rate hike.

The currency criis in Africa has a major impact on Jumia’s performance. First,it is leading to major inflation since most African countries thrive on imports. For example, an iPhone Pro Max that was costing about Ksh. 120k in 2022 has now jumped to over $215k in Kenya.

In a continent with high unemployment rate and weak wage growth, this inflation will continue hurting the company. In its most recent quarter, the company’s revenue dropped by 15% to$48.5 million.

Second, most Jumia sellers import products from China. As such, they are now paying more for imports as the dollar shortage continues. Finally, Jumia publishes its results in dollars but does business in local currencies. This means that its results will always have forex headwinds.

Jumia has taken measures to reduce its costs. For example, it has exited some unprofitable markets and reduced fulfillment costs. These cost cuts will not be enough.

Is Jumia stock a good buy?

Jumia chart by TradingView

Jumia stock price has crashed by more than 96% from its all-time high. Unfortunately, I don’t see the company’s path to recovery since the macro condition in its key markets is not improving.

Jumia’s balance sheet is also not strong enough. Its most recent results showed that its cash and short-term investments dropped to $166 million from the previous $205 million. In the same quarter, the company’s revenue was $48.5 million and its net loss was over $31 million.

Therefore, while Jumia’s cash balance and the fact that it has no debt is a good thing, the stock will remain in trouble as macro conditions deteriorate. As such, I suspect that the Jumia stock price will continue to fall. This view is in line with my last Jumia forecast .

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