Jumia Technologies AG (NYSE:JMIA) Q1 2024 Earnings Call Transcript

Jumia Technologies AG (NYSE:JMIA) Q1 2024 Earnings Call Transcript May 7, 2024

Jumia Technologies AG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia’s Results Conference Call for the First Quarter of 2024. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We will start by covering the Safe Harbor. We would like to remind you that our discussions today will indicate forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today.

We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the risk factors section of our annual report on Form 20-F as published on March 28, 2024, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I’ll hand the call over to Francis.

Francis Dufay: Hello, everyone, and thank you for joining us this morning. I want to begin today’s call with a review of our performance and an update on progress against our strategic growth objectives. I will then turn the call over to Antoine for a more in-depth review of our financials and we’ll conclude with a Q&A session. Jumia is off to a strong start of the year. After a transformational 2023, we have continued to work diligently to reduce costs and improve cash efficiency, while establishing a leaner and more agile organization primed for growth. In the first quarter, we saw tangible results that our strategy is working. In line with expectations, GMV improved to $181.5 million, up 5% year-over-year or 39% on a constant currency basis.

This was driven by continued efforts to enhance our product assortment, complemented by more efficient marketing spend and a reduction in consumer discounts. AOV also expanded by 3% year-over-year to $39.6 in the quarter, while other growth climbed 1.9%. Combined, these results helped drive top line revenue of $48.9 million, up 19% year-over-year or 57% on a constant currency basis. At the same time, we are delivering greater efficiencies across our cost base. Here, we are targeting more efficient marketing channels, streamlining our logistics network, while reducing G&A and tech expenses. These efforts reduced our quarterly cash burn from $22 million to $19.1 million in Q1 illustrating that we can still grow at scale without spending heavily.

Our loss before income tax increased to $39.6 million from $29.2 million a year ago due in large part to outside finance costs driven by significant FX impact in the quarter mostly without the cash impact. Adjusted EBITDA loss, which excludes this cost, declined to $4.3 million in the first quarter or 94% on a constant currency basis. Our results are more notable when considered against the challenging macro backdrop in some of our markets. In the first quarter, we saw further currency devaluations in Egypt and Nigeria, two of our largest markets. The Nigerian Naira devaluated to NGN1396 from NGN461 to US$1 or roughly 200% year-over-year devaluation. In Egypt, the Egyptian Pounds devaluated from EGP47 to EGP31 to US$1 or an approximately 50% year-over-year devaluation.

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Q&A Session

This has a significant impact on consumer purchasing power as well as supply availability. However, Jumia’s ability to secure sufficient inventory and offer the diversified product assortment at competitive prices continues to keep customers engaged in our platform. For example, despite volatile market conditions, we are seeing positive orders growth in countries like Nigeria and Ghana, illustrating the strength of Jumia’s value proposition. On the other hand, we also saw positive movement in selected currencies against the US Dollar and some policy changes that we believe indicate macro improvements in selected countries. For example, after the Egyptian government floated the Egyptian Pounds and significantly increased interest rates, the country has experienced a large influx of US Dollars from foreign investors.

In Nigeria, there are early signs of macro improvement, while in Kenya, the Shilling has gained almost 19% in the first quarter. We are actively monitoring conditions on the ground and remain hopeful that the environment will improve as we continue executing against our growth strategy. As a reminder, our growth strategy is centered around three key pillars. First, we are focused on strengthening our core business while simplifying our operating model to create nimbler and more efficient operations. Second, we are committed to improving cash efficiency by optimizing marketing spend and reducing our overall cost base. And third, we are building strong operating fundamentals by improving supply and assortments and expanding outside of the main urban centers.

Beginning with strengthening our core business, we believe that by simplifying the bank experience and focusing on the basics, we can better serve our customers and drive growth. As the leading Pan-African e-commerce player, we have a well-developed strategy informed by our first mover advantage and extensive local knowledge of the logistics and payment landscape. In late 2023, we moved to exit businesses into non-strategic including Jumia Food, while also reducing headcount across multiple areas to deliver greater operating efficiencies. Additionally, we are focused on making JumiaPay, a stronger enabler of our e-commerce platform. We are streamlining the user experience to reduce processing times and the number of steps needed to validate payment and continue to roll out JumiaPay on delivery in some of our largest markets to increase the number of cashless orders.

We already had a successful rollout in Kenya and are in the process of implementing this in Nigeria and we believe that over half of the transactions could be cashless by the end of 2024. Combined, these efforts have increased the share of physical goods transactions in JumiaPay by 12.6% year-over-year. In addition to JumiaPay, our vast logistics network also serves as a powerful enabler of our e-commerce platform. Our localized integrated logistics network is effective in harnessing the power of local partners to expand our footprint and drive commerce beyond major urban markets. To improve our network optimization and reach more underserved communities, we have increased the number of pickup station deliveries by 18% year-over-year in the first quarter.

We are also improving our proprietary systems to drive scalability, enhance warehouse staff efficiencies and reduce packaging costs. These efforts are delivering real tangible results. As a percentage of GMV, fulfillment expense improved from 7% to 5%, while fulfillment expense per order excluding JumiaPay app orders, decreased by 20% year-over-year to $2.41 Turning to our second growth pillar. Here, we are focused on improving cash efficiencies through optimization of marketing spend. In Q1, we reduced marketing spend by 30% year-over-year and focused attention on more efficient marketing channels, including CRM and SEO. For example, we have enhanced SEO and customized our marketing notifications and newsletters to target the specific needs and preferences of local markets.

Our more disciplined and targeted approach is also attracting a stickier and higher quality customer base as evidenced by the growth in GMV, orders per customer and the repurchase rate this quarter. No longer are we attracting customers based on promotions or discounts where they tend to order once and then leave the platform. Rather, our cohort data shows that roughly 39% of people in our Q4 2023 cohort of new customers completed a second purchase within 90 days. This compares to 36% of people in the Q4 2022 cohort reordering in Q1 2023. This 300 basis point improvement is significant for an e-commerce company like Jumia, where we have ended many vouchers and free shipping offerings and began moving away from categories like groceries, which have high repurchase rates, but poor economics.

On the expense side, we continue to take a disciplined approach to cost management. To-date, we have reduced overall headcount by 43% since the end of 2022. In Q1, we made further reductions, helping to deliver 31% year-over-year decline in G&A expenses. These actions enable a leaner and nimbler organization that can move quickly and react faster to support future profitable growth. Additionally, we are refining our cash repatriation and foreign exchange strategy. Over the last four quarters, we have repatriated cash from several of our main African markets to Germany. As of Q1, 79% of our liquidity position was held in US Dollars. We know from years of operating in Africa that these efforts helped limit our risk as well as our exposure to fluctuating local currency valuations.

We will continue to be disciplined in this area as we move forward in order to effectively manage our cash position. For our final growth pillar, we are building strong business fundamentals with a focus on securing the supply of in-demand products. Purchaser behavior in Africa is quite unique, diversified by relatively low incomes and a strong focus on affordability. At the same time, there is a significant amount of pent-up demand that’s fully served by the current retail networks. At Jumia, we are uniquely positioned to capitalize on this market gap by prioritizing high demand products in categories including electronics, phones, home and living as well as fashion and beauty. By offering the right products at affordable price points and leveraging our reliable logistics network, we are well positioned to service the African e-commerce market.

Our success is evidenced by the continued growth in the AOV of vehicle goods, which climbed to $46.2 in Q1 versus $41.9 in the prior year. The ability to deliver the right assortment is a direct result of our continued efforts to broaden our supply base. In the first quarter, we expanded relationships with new brands as well as with local and international vendors. On the brand front, we are developing partnerships with notable international players to further consumer engagement on our marketplace. In Egypt, for example, we are working with Samsung and LG to expand the availability of their goods to the Egyptian market, where there is strong demand for the electronics and phones. Having obtained importation licenses in Egypt, we’re able to move quickly to unlock demand from both individuals and corporate customers.