Jumia Technologies AG (NYSE:JMIA) enjoyed a highly-watched IPO that saw the company shoot far ahead in the marketplace, but its recent performance has been muted, with accusations of fraud diminishing its share prices. Jumia’s trouble was so serious that, for a brief period, the company’s shares dipped below their IPO level, with many analysts postulating that the company was in over its head when it comes to performing in a major marketplace.
Jumia is down but not out, however, and it wouldn’t be fair to argue that the company is yet doomed. Primed and ready to capitalize on the robust e-commerce growth Africa is set to enjoy, Jumia could yet steer itself out of the storm into calmer waters. Here’s what to know about the e-commerce company’s prospects.
Jumia was hit hard by accusations
Perhaps the leading cause of Jumia’s (NYSE: JMIA) current trouble is the myriad of accusations that the company is facing. The Dubai-based company is focused on tapping into e-commerce growth across Africa, but it’s more recently been put on the defensive following allegations that it misled investors in the lead up to its IPO. Citron Research didn’t hold back, either, calling the entire company a worthless fraud in a scathing allegation that’s yet to be confirmed by the SEC or other authorities. Nevertheless, some investors were clearly upset at the allegations, enough to lead the company’s share prices to dip below its IPO levels. Overall, Jumia saw its share prices dip by a whopping 35% over the month of July. While share prices in May were hovering around 47$ each, up from its original offering price of $14.50 per share, it briefly traded at the $13.50 range. This tumultuous decline doubtlessly scared many potential investors away, but Jumia isn’t yet facing serious legal action and the allegations against the company remain, at this point in time, nothing more than allegations. At the end of August, after Jumia publishes its second-quarter earnings, investors and critics alike will have much more to base their future expectations on than presently vague allegations. Major humanitarian initiatives and famous investors like Bill Gates have spoken at length about the potential of youthful Africa, which remains the world’s youngest continent, and those who still support Jumia largely believe the company can recover from this loss by focusing on an ambitious future. With the African population burgeoning at a time when populations in developed economies are often shrinking, there’s serious potential for e-commerce operations to find a youthful consumer base across the continent for decades yet to come. Jumia will have to work hard to convince the public that it can shrug off the allegations and tap into that growth, however, if it ever hopes to re-attain the loft heights its share prices once soared to in the wake of its market debut.
Jumia is facing losses
Despite the fact that the allegations against Jumia have rendered the company down but not out, it’s also crucial to note that it’s still facing some serious losses. This was a problem before the allegations against Jumia surfaced and will continue to plague the company’s financial future as it seeks to protect investment, regardless of the validity of claims against it. When reviewing its S-1 filings, for instance, it can be noted that Jumia has accumulated losses of up to $1 billion since its inception, a large figure likely to turn some investors away from the e-commerce focused business.
Jumia will have to work tirelessly to address those massive losses, as plenty of investors are familiar with businesses that post losses but few are willing to financially back one as deeply in debt as Jumia. It’s also worthwhile to note that those making allegations against Jumia don’t have an entirely blemish-free record themselves; Andrew Left, the founder of Citron, is himself banned from trading in Hong Kong for making false allegations that misled investors and customers. That’s worth keeping in mind as Jumia attempts to shrug off these as-of-yet unclear allegations, which the SEC has yet to address.
The fact that Citron’s leader has a history of making unfounded allegations should give serious pause to those who are counting Jumia out already because of the claims recently made against the company. Nevertheless, the charges against Jumia are serious, and if the company did indeed mislead investors it will find it incredibly difficult to regain their trust in the forthcoming years, especially if it continues to lose money. Investors should exercise caution around Jumia stocks, but it’s imperative to stress that the yet-unfounded allegations are vague and made by those with a history of lies themselves. Africa’s budding e-commerce sector is a truly promising investment area, and Jumia still stands ready to dominate that sector if it can skirt by its present circumstances. Jumia’s stock prices may have taken a beating recently, but the company is still charging ahead into the future, and it would be foolish to argue it doesn’t have an opportunity to right the ship and achieve smooth sailing.