JMIA - Jumia Technologies: CEO Francis Dufay Discusses A Milestone Quarter

2023-11-21 06:27:42 ET

Summary

• Jumia Technologies improves guidance for 2023 EBITDA loss and achieves year-over-year growth in 5 countries.
• CEO Francis Dufay discusses reducing unit costs, the strategic importance of pickup stations, and dynamic marketing strategies.
• Jumia collaborates with Starlink for internet access and shows resilience in challenging macroeconomic environments.

Introduction

The third quarter of 2023 marked a significant milestone for Jumia Technologies (JMIA). The company improved guidance for its 2023 EBITDA loss along with announcing the achievement of year-over-year growth in 5 countries. Customer repurchase rates even improved. Jumia is becoming a lean marketing machine with strengthening vendor and supplier relationships. The Q3 earnings conference call provided vivid examples of Jumia's operations and its drivers of success.

With this backdrop, I was even more excited this time around to interview CEO Francis Dufay about the latest company results. I asked about several key topics: the prospects for further improvement in unit costs, pick-up stations, marketing strategy, the collaboration with Starlink and other vendors, macroeconomic conditions in Jumia's African markets, and drivers of operational excellence. Dufay responded with a colorful tapestry that paints an ever brighter future for Jumia despite on-going economic headwinds.

Unit Economics

Dufay insisted that "there is still more to come" when it comes to reducing unit costs. For example, increasing scale is improving unit economics on supplies, including marketing spread across more units. Jumia has been able to reduce logistics and fulfillment costs while expanding into smaller cities. This dynamic was counterintuitive to "some observers", but Jumia pulled it off with a model that runs a truck starting from the main warehouse to serve 10 pick-up stations over 1 or 2 days before returning to base (a milk run). Jumia also increased share of sales from pick-up stations (more on that later). There are still some larger countries that have yet to shift more order share to pick-up stations.

There are also more operational improvements to come along the supply chain although Dufay cannot guide to a timeline.

The Strategic Importance of Pickup Stations

The role of pickup stations in Jumia's delivery network has grown substantially, now accounting for 44% of total deliveries. Dufay gave an example from Nigeria where Jumia has expanded into new areas. He explained the expansion step-by-step:

• Focused on two routes by reviewing the footprint of distribution and relocating pick-up stations to capture as much traffic as possible.
• In some cases, shut down delivery options where it was not relevant (where people in smaller cities were happy with an option cheaper than delivery).
• Rolled out localized marketing with street activations, JForce (commission agents), radio, and print marketing (including catalogs, flyers, and leaflets).
• Improved frequency of delivery.

Dufay emphasized that "building trust in e-commerce is not easy", so marketing strategies must be tailored to local conditions. For example, in smaller cities, the marketing must directly reach people thus explaining the old-school tactics of direct communication and analog/physical channels. The pick-up stations also serve as their own trusted, physical marketing presence.

For physical goods, Jumia achieved a year-over-year increase in order share for pick-up stations from 36% to 44%. Dufay indicated that there is no specific target share as the specific share "responds to different needs in different markets." For example in Cairo, home delivery is an important and necessary option. "Up country", outside of the major cities, traffic congestion is less of a problem and getting to a pick-up station is a convenient and cost-effective way of receiving goods. In some cities, consumers are not willing to pay for delivery.

Jumia experimented in some cities by offering the option of a pick-up station or home delivery. The company found in many cases that consumers would rather pay a cab fare to pick up their order from the pick-up station rather than pay for delivery. Dufay observed "we see that there's very high demand for pickup stations because it's cheaper. It's actually quite convenient."

Dynamic Marketing and Customer Engagement

Discussing Jumia's marketing approach, Dufay described it as both sustainable and adaptable to individual market needs. He said, "we are playing with marketing budgets in a very dynamic way… depending on the level of progress in each country and the value proposition." Being able to attract supply works as its own kind of marketing. Price conscious customers seek out the best offers. Moreover, Dufay noted that as Jumia has shown in Ivory Coast, when you "create in each city that word of mouth, it never stops growing."

As a sign of improved customer engagement, Jumia increased its 30-day repurchase rate by 2 percentage points year-over-year for physical goods in its six priority, core categories. This is a big move for an e-commerce company according to Dufay. Better offers and supply were the main drivers while better CRM (customer relationship management) was also a secondary driver.

Strategic Collaboration with Starlink

A key highlight of the quarter was news of Jumia's partnership with Starlink satellite internet service . Dufay explained the strategic importance of this collaboration, saying, "It makes perfect sense for us to add such technology to our platform… It helps us fix problems in the daily lives of our customers in accessing the internet…It's something that perfectly fits what we're trying to achieve across the continent." Jumia has an exclusive business-to-consumer (B2C) distribution deal. Jumia will sell the hardware for Starlink Residential Kits . The current deal is for Nigeria for a launch "in a matter of weeks." Discussions are underway for a launch in Kenya later in 2024.

Starlink benefits by getting access to the entirety of Jumia's distribution network, starting with 100s of cities in Nigeria. Dufay further explained that with Jumia, Starlink does not "have to deal with a broad network of hundreds of intermediaries and regional managers…they don't have to set up the whole pyramid of country distribution in the country, which can be extremely complex." Jumia is bringing Starlink to areas where internet connectivity is much needed.

So while Jumia handles distribution, Starlink can focus on creating great products. Starlink also has a trusted partner in Jumia, a company that is listed in the U.S. that is fully compliant.

Macroeconomic Environment

"Ghana is still a difficult story in terms of macroeconomics" according to Dufay. However, the important message is that "we are able to operate in environments…with high inflation and [poor currency] valuations." The weakening currency in Ghana impedes access to supply. Suppliers will not release goods until they believe they can manage their margins, but Jumia is working through these challenges.

Overall, Dufay sees some stabilization unfolding at different rates in various countries. Regardless, Jumia is not going anywhere; Dufay proclaimed that "the more we make progress on the plan, the more we can deal with… a difficult environment…"

Operational Excellence

Dufay referred to "operational leakage" in the earnings conference call. In the interview, Dufay further explained this problem as damaged goods or rejected products which destroy value for the vendor. Jumia has been working very hard with vendors to reduce operational leakage over the past 12 months. Damage in these supply chains used to be common; Jumia is working to fix that. These efforts will in turn secure much needed supply and scale across Jumia's markets.

Growth

Dufay concluded by emphasizing that "we finally have 5 countries that are clearly growing year-over-year in the core business which is physical goods." In other words, "the plan is working….which gives us confidence for the other countries." The rebuilding of categories is the number one driver: better supply, better price points.

More from the Earnings Conference Call

There was other important news from the earnings conference call .

Firstly, Jumia lowered its EBITDA loss guidance for 2023 thanks to its momentum with cost reduction. Directly from the earnings report :

"Considering the strong progress made on loss reduction in the nine months ended September 30, 2023, we expect Adjusted EBITDA loss for 2023 of $80 million to $90 million compared to the previously communicated range of $90 million to $100 million. This implies a 57% to 61% year-over-year reduction in Adjusted EBITDA loss."

Dufay also provided very vivid, country and vendor specific examples of how Jumia succeeds in its various markets. I talked to Dufay about Nigeria relative to pick-up stations and the Starlink deal. The earnings conference call also covered Senegal, Uganda, and Ghana:

Senegal: decreasing fulfillment expenses per order . "While we had historically struggled with volatile or insufficient supply across our core categories in Senegal, our team based in Dakar, managed to build a much better assortment, leading to robust year-over-year growth in both GMV [gross merchandise value] and orders in Q3 '23." The supply has been bolstered by yearly supply plans with local suppliers. Jumia has also grown offerings from "several Pan-African and European brands…such as Leroy Merlin, a leader in the home improvement category in Europe."

Uganda: supply improvements and efficient marketing . "We have recorded strong year-over-year growth in beauty, home and living, and electronics, thanks to our efforts aimed at building more consistent supply and price leadership." Jumia is also benefiting from an expanded distribution network that started a year ago. Cities outside the capital of Uganda are growing share in the mix. CRM routines are sending out more personalized offers to users of the app. As a result, Jumia achieved "robust" year-over-year growth on GMV and orders, while sharply reducing marketing costs and improving our economics.

Ghana: one of Jumia's fastest growing countries for GMV . Jumia made its "product lineup more competitive in the electronics, appliances and fashion categories, especially with entry-level brands." The company also focused on "price leadership" that was attractive to cost-conscious consumers.

Finally, Jumia provided more details on its efficient, low-cost marketing tools. The company has put an emphasis on CRM and SEO (search engine optimization). Jumia used app push notifications to increase the share of visits for physical goods related to CRM by 25% year-over-year. SEO's share of marketing increased by 36% year-over-year. These marketing efficiencies helped to drive sales and advertising expenses down 74% year-over-year (67% on a constant currency basis).

Jumia also significantly reduced its vouchers campaigns, free shipping and other discounts for physical goods. The share of orders using these promotions fell from 44% a year ago to 27% in Q3 2023.

Conclusion

Jumia achieved several important milestones in Q3 2023. So far, the stock market has responded tentatively to the good news. Barring new macroeconomic headwinds, I expect this juncture to mark a major turning point for JMIA. Accordingly, I upgraded Jumia from a "Buy" to a "Strong Buy" for a long-term view on the economic success of Africa's major e-commerce markets.

For further details see: