Jumia stock sheds 50pc after report links the online retailer to fraud

Monday May 20 2019

Africa-focused e-commerce firm Jumia is struggling to dispel allegations that it “fudged the numbers” to paint a picture of a stable business prior to listing on the New York Stock Exchange. PHOTO | FILE | NATION MEDIA GROUP


Africa-focused e-commerce firm Jumia is struggling to dispel allegations that it “fudged the numbers” to paint a picture of a stable business prior to listing on the New York Stock Exchange.

Jumia, which has operations in East Africa, has taken a beating since listing on the NYSE last month, after a report by Citron Research accused the company of fraud, a development that has resulted in its share price nosediving by over 50 per cent.

The report comes at a time when questions linger on whether the company can be considered a truly African entity not only because of opting to list on the NYSE but also due to its ownership structure that includes incorporation in Germany, headquarters in Dubai and a central tech team based in Portugal.

Riding on a tagline of “100 per cent African” and often seen as the “Amazon of Africa,” Jumia has operations in 14 countries with its biggest markets being Nigeria, Kenya, Morocco and Egypt.


In its report, Citron reckons that in order to raise money from investors, Jumia inflated its active consumers and active merchants figures by 20 to 30 per cent and failed to make disclosures that 41 per cent of orders were returned, not delivered, or cancelled.


“Assuming 41 per cent of orders were returned, not delivered, or cancelled in 2018, this implies that almost 30 per cent of orders were cancelled in 2018. Since Jumia primarily sells consumer electronics, which should not have this high a cancellation rate, it reeks of fraud,” says the report.

The report adds that between 2015 and 2018, Jumia made little progress in its core business with revenues declining from $145 million to $131 million while adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) went from $161 million to $150 million.

Of importance to note though, is that despite calling Jumia a “smoking gun” and igniting panic among investors, Citron founder and report author Andrew Left has repeatedly been accused of causing alarm among ordinary investors.

In 2016, Hong Kong Securities and Futures Commission accused Mr Left of spreading false information about a Chinese company, Valeant Pharmaceuticals International Inc, and went on to ban him from trading in the country for five years.

The revelations in the report have had adverse effects on the firm’s share price which debuted at $14.50 on the NYSE after it listed through an initial public offering.

While the stock peaked by over 70 per cent to hit $46.99, it has since come crumbling down, trading at $25 by close of trading last week.

The allegations by Citron have prompted US investments fraud investigators Holzer & Holzer to launch a probe of the firm.

“Holzer & Holzer investigating whether certain statements made by Jumia complied with federal securities laws,” said the investigators.

Jumia’s woes are mounting after New York-based law firm Bragar Eagel & Squire, filed a lawsuit against the company over allegations that it made materially false and misleading statements.

“The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements about Jumia and its business,” said the lawsuit filed on behalf of investors who bought the company’s shares.

The US Securities and Exchange Commission has however remained silent on the issue.

Jumia, through its investment banker Citigroup Global Market Inc, is struggling to put out the fire ignited by Citron, maintaining its business remains sound and has the ability to deliver its promises to investors.

“For investors, we believe the most important factor remains the company’s ability to deliver on its guidance, starting with Quarter One,” said Citigroup.

The rider, however, was that Citigroup was maintaining itS neutral/high risk rating on Jumia shares, reflecting the significant growth prospects of the company balanced by the inherent volatility of operating in early stage e-commerce markets.


According to the company’s Q1 financial results released this week, its gross merchandise value (GMV), the total amount of goods sold over the period, posted a 58 per cent increase to $269.3 million from $170.5 million over the same period last year.

Despite increase in sales, operating losses widened to $50.9 million from $38.4 million with negative Ebitda increasing to $44.3 million from $33.8 million.

“We believe that Jumia is increasingly relevant for consumers and sellers in Africa. Looking ahead, we remain focused on our core operations, driving consumer adoption and engagement on our marketplace,” said Sacha Poignonnec, Jumia co-CEO.

In the prospectors presented to SEC prior to the listing, Jumia admits that it has incurred significant losses since inception and there is no guarantee that it will achieve or sustain profitability in the future amid many other risks facing the company.

Since inception in 2012, the company has now accumulated over $1 billion in losses.

However, it believes that considering the e-commerce market in Africa is still nascent, the company is well positioned to grow considering that last year, less than one per cent of retail sales were conducted online compared with nearly 24 per cent in China.

“We intend to benefit from the expected growth of e-commerce in Africa through the investments that we have made and the extensive local expertise that we have developed,” said the firm.

Jumia projects the growth to be driven by the impressive economic growth on the continent forecast to average 5.9 per cent, over the next five years, massive investments in infrastructure development, large, fast-growing and young populations and increasing urbanisation.

By end of March this year, the company had 4.3 million active customers, up from three million a year ago.