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SETTLEMENT

Jumia, Africa’s e-commerce leader, is paying out $5 million to settle class-action fraud lawsuits

NYSE
Jumia's big day in 2019.
  • Yomi Kazeem
By Yomi Kazeem

Africa reporter

Published

Jumia’s second quarter earnings results show the company is looking to draw an end to a spate of legal wrangles.

Months after a high-profile successful IPO on the New York Stock Exchange last year, the company faced allegations of fraud and was the subject of class-action lawsuits over “alleged misstatements and omissions” in its IPO filing documents.

But Jumia’s management say the company has now reached an agreement “to fully resolve all of the actions,” subject to court approval. The agreement will see Jumia make a settlement payment of $5 million ($1 million of which will be funded by insurance coverage) while the company does not admit any liability or wrongdoing.

The agreement partly resolves what has been a tumultuous full year of being publicly listed but investors will also note that the company’s earning results for the second quarter of the year reflected a €37.6 million ($44.3 million) operating loss, a 44% year on year reduction but revenues fell 10% in the same period. Its gross merchandise volume (GMV) dropped 13% year on year to €228 million ($269.7 million) even though orders for the quarter reached 6.8 million, a year-over-year increase of 8%.

Shares fell more than 20% to $12.80 by afternoon on Wednesday (Aug. 12). Jumia’s shares had been floundering since the start of the year plunging to below $3 in March as economic uncertainty spread around the world. But some US analysts and investors decided to group Jumia with giant Amazon perhaps believing as a pan-African e-commerce leader it would also see a similar growth trajectory across the continent as more people turned to shopping online. This renewed interest in Jumia sent its shares to a 2020 high of $21 on Aug. 3.

Changing focus

Jumia continues to change the focus of its inventory in pursuit of turning profitable. After de-emphasizing focus on phones and electronics, the e-tailer is now reporting “smaller-sized, more profitable orders” as average order value fell to €33.8 (down 19% from last quarter) while gross profit per order after fulfillment expense is up to 90 cents, up from a loss of 10 cents per order last quarter.

“Our strategy to increase the focus on what we call the everyday categories…while driving cost savings is yielding good results,” chief executive Sacha Poignonnec said on the earnings call. “We are shifting more business to beauty, fashion or fast-moving consumer goods which have higher commission rates and are less promotionally intensive like phones and electronics.” Mobile phone and electronics now account for 43% of Jumia’s GMV, down 37% year on year, while beauty and personal care is the company’s fastest growing category in GMV and volume terms.

Growth in the “everyday categories” segment is also linked to the underlying effects of the coronavirus pandemic on the continent as more local users turn to online shopping for essentials and groceries out of necessity and safety. As that trend holds, the continued interest from large brands and small sellers in partnering with Jumia’s marketplace also shows they are increasingly “turning to e-commerce as an important route to market,” Poignonnec  said.

Alongside changing the focus of its inventory, Jumia is also attempting to change how its users pay for these orders through Jumia Pay—its in-house fintech solution.

Total payments volume on Jumia Pay more than doubled year on year to reach an all-time high of €53.6 million ($63.1 million) as transactions topped 2.4 million. While the growing conversion of more users within the Jumia marketplace represents good news for the company, its long-term focus involves positioning its Jumia Pay payments service as a standalone product and possible driver of revenues and, eventually, profits. After launching Jumia Pay in seven of its African markets, Jumia is aiming to spin off the service and target a share of local electronic payments markets.

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