- Jumia stock plummeted after disappointing Q2 results showing revenue decline and continued losses.
- Company plans to raise capital through a share offering, potentially diluting existing shareholder value.
- Investors should wait for market to digest the news before considering any investment decisions.
Disappointing Q2 financial results and a fresh share offering could provide an opportunity to investors
Jumia Technologies (NYSE:JMIA) stock plunged 53.82% to $4.89 Tuesday after the Africa-based e-commerce brand posted Q2 financial results that disappointed investors.
The firm provides e-commerce and delivery services much like Amazon (NASDAQ:AMZN) does in the U.S. In the second quarter of 2024, Jumia Technologies reported revenue of $36.5 million, down 17% year over year but up 15% in constant currency.
Also, Jumia’s orders increased 7% in Q2. However, the company sustained an operating loss of $20.2 million during the quarter, so it was a mixed picture overall.
On the same day, Jumia agreed to issue and sell more than 40 million American Depositary Shares (ADSs), which are the equivalent U.S. version of stock shares for non-U.S. companies.
This may have been a key factor in the rout, as investors won’t know exactly how many new ADSs Jumia intends to print and sell. Even if it’s exactly 40 million, it could substantially dilute the value of Jumia’s existing shares.
However, the trade-off is that Jumia will receive a sizable capital infusion. Whether the company will deploy the capital wisely remains to be seen.
Measuring Jumia’s Sales Growth or Contraction
Then, there’s Jumia’s Q2-2024 report. The company generated quarterly revenue of of $36.5 million, and there are two different ways to view this result. Jumia’s revenue was down 17% year over year, or up 15% in constant currency.
Judging by the share-price rout, the market appears to have taken a cynical view and focused on the traditional U.S. revenue-comparison calculus.
However, using a constant-currency methodology (which applies a fixed exchange rate to offset the impact of currency-rate fluctuations) may be the more appropriate way to assess Jumia’s revenue trajectory.
In other words, U.S. traders may be hyper-focused on one sales metric. But then, it’s also conceivable that jittery investors viewed the totality of Jumia’s quarterly results, which were mixed at best.
Positive and Negative Points in Jumia’s Results
Jumia Technologies CEO Francis Dufay attempted to highlight the positive points of the company’s second-quarter results. He touted Jumia’s 7% year-over-year increase in orders and 35% gross merchandise value (GMV) growth in constant currency.
Moreover, Dufay noted the company’s 55% sequential decline in cash burn, to $8.7 million, driven by “disciplined cost management and reductions in finance costs”.
Dufay didn’t focus on Jumia’s pain points, however, such as the company’s $170.1 million in Q2-2024 GMV. As mentioned earlier, this result was up 35% in constant currency, but it was down 5% when using traditional U.S. measurements.
Finally, Jumia incurred an operating loss of $20.2 million, versus a loss of $22.1 million in the year-earlier quarter. That’s ‘down’ (i.e., improved by) 8% year over year, or 5% in constant currency. So, it’s progress no matter how one measures it, but a loss is still a loss.
Jumia Stock: Let the Market Digest the News
In sum, Jumia Technologies continues to lose money, and may or may not have declining sales, depending on how one chooses to measure the data.
Along with all of that, the company plans to issue and sell an unknown but large quantity of shares. This raises the question of whether Jumia Technologies might enact more share-dilutive capital-raising measures in the future.
That’s certainly not an encouraging prospect. After due consideration, it’s wise to let the market absorb all of this news — and probably continue selling Jumia stock over the next few days — before assessing this as a “good deal” and jumping into a trade.