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Jumia blames poor Q2 result on worsening macroeconomic terrain

Jumia blames poor Q2 result on worsening macroeconomic terrain

Jumia Nigeria, the e-commerce giant with aspirations of becoming the “Amazon of Africa,” has cited the deteriorating macroeconomic climate in Nigeria as the primary factor behind its disappointing financial performance in the second quarter of 2023.

This comes despite implementing significant cost-cutting measures, the company’s financial reports reveal a decline in cash profit, mainly represented in its Adjusted EBITDA (Earnings Before Interest, Depreciation, and Amortization).

This decline has been attributed to the worsening reduction in consumer purchasing power, as explained by Francis Dufay, the Group CEO, during the financial report presentation on Tuesday.

Dufay highlighted the alarming reduction in consumer purchasing power as a major contributor to the company’s difficulties, stating, “We’re facing right now in emerging markets and especially in Africa the worst macroeconomic situation in a decade or more… It’s heavily impacting the purchasing power of consumers “.

A deeper analysis of the financials reveals that the exit of over one million active subscribers has significantly contributed to the company’s lacklustre financial performance.

Jumia’s active customer base dropped by 28 percent, from 3.4 million in Q2 2022 to 2.4 million in Q2 2023. This exit also led to a considerable decline in quarterly orders, which fell by 37 percent, equating to a reduction of 3.8 million orders compared to Q2 2022.

This substantial decline in customer activity has had a ripple effect on the company’s financial metrics. The Gross Merchandise Value (GMV) of goods on its platform fell by 27 percent, representing a loss of $68.8 million to $201 million in the second quarter of 2023 compared to the same period of $271.1 million in 2022.

Despite implementing measures to reduce operational expenses by 47.8 percent, gross profit still saw a significant decline of 3.9 percent.

The cost-of-living crisis in Nigeria, Africa’s largest economy, remains a persistent threat to Jumia’s presence in the e-commerce sector.

The company acknowledges the need for strategic changes to reverse its downward trajectory and has outlined key measures to achieve this.

Jumia plan to enhance its supply and assortment relevance, expand its reach to untapped consumer pools beyond primary cities, improve the user interface and platform simplicity, and strengthen its JumiaPay system to minimise cash friction.

The company said, “We are going to improve supply and assortment relevance.”

“We are going to tap into large, under-penetrated consumer pools beyond primary cities in our geographies.”

Despite these proposed changes, the financial report has sparked widespread commentary on social media platforms, particularly X (formerly Twitter).

Tech experts and customers alike have voiced their opinions. Some express optimism about the new CEO’s urgency and discipline in addressing the challenges, while others are more critical, suggesting that the company’s “Amazon of Africa” dream might be unrealistic given the current circumstances.
Emeka Ajene, a tech expert with more than 4,700 followers on X, said sarcastically that there was hope for the company.

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Ajene twitted, “(with a laughing emoji) There’s always hope. New CEO seems to be acting with sense or urgency & discipline. That said, it’s a challenging environment. And with only 8M customers last year — a decade after the company’s founding — I think its “Amazon of Africa” dream is very much dead.”

Another respondent, Peter of Hovasabi.com, complained about the quality of the products on their website, especially as its competitors continue to gain positive reviews regarding their products.

Peter twitted, “Jumia think-tank should have a rethink about how they can service their customers better not just focus on selling products. Fix poor delivery. Have a high standard on product listed. Offer better addon deals.”

However, Davidicdoc, a tech expert based in London and followed by some prominent tweeps such as Kalu Aja, said that the financial result of the e-commerce company was long expected. The tech expert, who seems to have been following the company for some time, suggested that the company management needs to be more creative.

Davidicdoc tweeted, “Some of my predictions from the thread analysis I did on their S1-IPO filing in 2019 show reality is worse! Especially, now that their GMV scale is receding. Honestly, Jumia leadership probably one of the least creative we have of that size.”