Jumia Technologies AG (NYSE:JMIA) Q4 2023 Earnings Call Transcript

Jumia Technologies AG (NYSE:JMIA) Q4 2023 Earnings Call Transcript February 15, 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 Fourth Quarter and Full Year 2023. 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 May 16, 2023, 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 the 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 will hand over to Francis.

Francis Dufay: Thank you. Welcome everyone and thanks for joining us today. 2023 has been a transformative year for Jumia. Upheavals on the global stage have had a significant impact on African economies and its people. High inflation rates and currency depreciations have led to scarcity of supply and have adversely impacted the purchasing power of consumers. These have been very challenging times for tech and retail businesses across the whole continent. Against that unsettling backdrop, we embarked on a fundamental transformation of our company in order to rapidly improve our financials and establish a stronger foundation for e-commerce business. This transformation obviously came with a painful short-term impact as we discontinued activities with poor growth prospects, stopped expensive marketing practices and radically streamlined our organization.

These bold and early decisions have paid off in 2023, yet we still have some way to go. We closed 2023 in a much stronger position, looking at both financials and business fundamentals. Our adjusted EBITDA loss for the full year of ’23 decreased to $58.2 million versus $182.1 million in ’22 and steadily improving quarter-after-quarter. Our loss before tax from continuing operations for the full year of ’23 decreased to $98.6 million from $206.2 million in ’22. Most importantly, we saw a reduction in the pace of the decrease of our liquidity from $227.4 million in 2022 to $106.9 million in 2023, leaving us with a liquidity position of $120.6 million at the end of 2023. Although GMV for the full year of ’23 declined by 20% and orders by 22% year-over-year, we have undergone a deep transformation of the company.

We believe that this transformation will enable us to achieve growth again during 2024 with improved unit economics and lower cash utilization. We believe that we can meet these goals in 2024 thanks to the lessons we learned in 2023, particularly in the two following areas. First, we have seen that efficiency and better unit economics do not come at the expense of future growth. We believe that Jumia is now a much leaner, more agile and more focused company. We have reevaluated our portfolio and made tough decisions regarding business activities that did not bring the right value. Recently, we discontinued our food delivery operations as we concluded that the growth prospects did not justify the complexity it created. We believe our focus and resources would be better invested in our physical goods business where we see more opportunity for revenue growth and higher margins.

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Q&A Session

We have achieved savings across the whole organization by shrinking general and administrative expense as well as significantly improving operational efficiency. We believe that these changes are enabling better output and laying the foundation for growth in ’24. We experienced positive year-over-year growth in GMV of physical goods in five of our 11 operating countries over the full year of ’23, accelerating over the second half while significantly improving our unit economics. Overall year-over-year GMV growth trends are improving quarter-after-quarter and we expect to be back to GMV and orders growth in 2024. Second important lesson that we’ve learned, I think we have proved that we can grow without disproportionate marketing spend. Based on our experience across 11 operating countries for over 10 years at Jumia, we believe that there is a lot of demand from African customers.

However, this demand remains poorly served due to inconsistent supply and prices across different countries and cities. Our mission at Jumia is to bridge this gap between brands and suppliers on one hand and customers on the other hand. We are committed to building better supply in our priority categories which are phones, electronics, home and living, fashion and beauty by working closely with local and international sellers and global brands. Along with our strategic focus to improve supply in those priority categories, we have deliberately reduced our sales and advertising expense by 68% in the full year of 2023 and cut customers incentives such as vouchers and free shipping. This strategy has come across as quite unusual, as many took for granted that growth in the e-commerce business is more or less a function of marketing costs.

We believe that 2023 results, and more specifically the improvement over the latest quarters, have shown that our strategy to reduce marketing expenditure while also pursuing top line growth is working in our African markets. Indeed, now looking at Q4 ’23, after four consecutive quarters of consistently low marketing expenditure we believe that we have proven our case. In addition to GMV growth in selected countries, we have successfully run our usual Black Friday promotional event with very lean marketing budgets. This led to a significant quarter-over-quarter uplift in GMV orders and number of active customers. GMV reached $233 million, down 8% year-over-year, but growing significantly on a constant currency basis by 21%. Similarly, revenue reached $59 million, down 2% year-over-year, but up 28% in constant currency.

On an important note, these sales trends were achieved while reducing sales and advertising expenditure by 63% versus Q4 ’22. Economics have shown further improvement in Q4 with loss before tax income from continuing operations down to $17 million dollars decreasing by 62% year-over-year and 66% on a constant currency basis. The adjusted EBITDA loss was positively impacted by significant reduction in tax provisions in Q4. Our liquidity position decreased by $27 million over Q4 compared to $57 million reduction in Q4 ’22. Q4 variation includes a negative $3.2 million impact from foreign exchange only. Continued improvement in growth trends quarter-after-quarter in ’23, combined with further reduction in operational losses, give us confidence that our strategic choices are paying off.

Looking at ’24, we are fully committed to further reducing cash utilization versus ’23 while following our strategy of bringing our business back to top line growth in both orders and GMV, excluding potential foreign exchange impact. To implement our strategy, we will continue to focus on our growth priorities in ’24, which are consistent with our efforts in ’23. In particular, we believe that there is still a significant amount of untapped potential for growth in all of our priority categories over the next several years. By executing consistently over time, we believe that we will be able to unlock substantial amounts of value. We see on the ground that the macro situation in several of our African markets is starting to recover and the latest IMF forecasts confirm improving GDP growth trends across our footprint in ’24 and ’25.

In this context, we are confident that Jumia has never been in a better position to capture the unique opportunity of e-commerce in Africa. Moving on now, let’s look into our usage trends in Q4 on Page 6. Quarterly active customers reached 2.3 million, down compared to Q4 ’22, but growing quarter-over-quarter by 16%. The company received a total $6.6 million orders in Q4 ’23, which is down 4% compared to Q4 ’22, but up by 17% compared to Q3 ’23. Quarter-over-quarter growth was driven by physical goods orders during our successful 2023 Black Friday campaign and yearend holiday period, while digital services remained stable quarter-after-quarter. GMV reached $233 million, down by 8% year-over-year, but significantly increasing on a constant currency basis by 21% and growing by 42% compared to the previous quarter.

The year-over-year decrease in both quarterly active customers and orders is mostly driven by actions taken to improve our economics and refocus. We moved away from the most unprofitable categories and some expensive consumer incentives such as free shipping which would typically drive lots of low value orders. This refocus has impacted usage, but it was the right thing to do since we want to drive profitable growth. Looking at GMV, the year-over-year decrease is primarily due to FX impacts and we think our GMV growth in constant currency is an important measure of our performance. Looking at the evolution of usage over the last two quarters, we see very positive development. Year-over-year growth rates in quarterly active customers, orders and GMV have been consistently improving over the last two quarters, reflecting the impact of the actions taken to build what we believe to be the right long-term fundamentals of our business.

Q4 performance in particular provides an important data point for us. Five countries were growing their GMV year-over-year in physical goods, both in actual dollars and on a constant currency basis for the second quarter in a row. These countries accounted for over half of our GMV from physical goods in Q4. Most importantly, we have delivered significant growth versus Q3 of ’23 across all usage metrics, clearly showing our ability to drive sales uplifts, thanks to our new strategy. We managed to run a successful end of sales season with the much awaited Black Friday campaign and the ensuring Christmas season. The sales uplift achieved during Black Friday ’23 is in line with past Black Friday events, proving that we can drive significant growth thanks to better supply while maintaining very conservative marketing expenditure.