Tuesday, October 20, 2020

Nigeria: Largest e-commerce operator in Africa, Jumia struggles with internal fraud

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Jumia, Africa’s largest e-commerce operator, is struggling with internal fraud, legal threats even as losses widened in the second quarter.

The company has disclosed it recently uncovered instances of improper orders placed and subsequently cancelled on its marketplace platform wrongly inflating its order volume. Some of the improper sales practices, the company said, were carried out by its own personnel in “Jumia Force,” its network of commissioned agents.

Cumulatively, the improper orders generated around €16 million ($17.5 million) in gross merchandise volume (GMV) value between the last quarter of 2018 and the first two quarters of 2019, the report shows. GMV is a metric used by e-commerce companies to highlight the total value of merchandise sold through the site.

Jumia claimed the fraudulent orders had had no impact on its financial statements even though it acknowledged the reported GMV figure for Q2 2018 had been adjusted in light of the improper transactions. Jumia management also revealed the employees involved have since been suspended pending a review.

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That detail will do little to assuage the negative speculation the company’s stock has endured over the past few weeks. Indeed, the earnings call came amid an extended slump in Jumia’s share price which saw it fall below its IPO price of $14.50 earlier this month. Despite an initial bullish run on the New York Stock Exchange which saw its share price peak at $49.77 after its landmark IPO, Jumia’s stock has remained subject of speculation of impending lawsuits and investigations amid previous claims of fraud by a short seller analyst.

Jumia has now confirmed that “several class action lawsuits have been filed” against the company and its officers in New York over “alleged misstatements and omissions” in its IPO prospectus. It also noted that the lawsuits “remain in their preliminary stages.”

State of affairs

While Jumia’s topline second quarter revenue grew to €39.2 million from €24.8 million a year ago, its net losses widened significantly to €67.8 million from losses of €42.3 million a year earlier.

Related: Nigeria to tackle international fraud in a new executive order by President Buhari

Central to its long-term plans to grow its customer base, the company reported having 4.8 million active customers in the second quarter of 2019—up by 500,000 compared to the first quarter of the year. Its gross merchandise volume (GMV) is also up by 69% year-on-year and “parallel” to GMV and customer base growth, the company also reports year-on-year increases in marketplace revenue (90%) and gross profit (94%).

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But while these metrics offer some context for the current state of Jumia’s operations, the telling metric reflects that the company’s operating losses have, yet again, widened year-on-year and quarter-on-quarter. It keeps with a historical trend for the company which has accumulated over $1 billion in losses since inception in 2012 as fueling its operations and growth in 14 African markets across several business verticals continue to prove costly

Jumia CEO Sacha Poignonnec told investors the company is still working on a target of breaking even “towards the end of 2022.” But that reassurance has not had an early positive impact on Jumia’s stock which is down 13% (as of press time) since trading opened on Wednesday (Aug. 20) in New York.

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