Jumia: Africa’s Great IPO Hope

Jumia: Africa’s Great IPO Hope

Jumia‘s IPO may be the jumpstart to African investment after several years of depressed African private equity fundraising and overall private investment.

All the hype for IPOs in 2019 appeared to be little more than hype, but perhaps “Africa’s Amazon” is different.

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The first quarter of the year is generally a quieter quarter for the IPO markets but 2019 is abnormally quiet, with deal volumes down 24 percent and 44 percent respectively in Asia and North America, per a recent report by the Ernest & Young (E&Y).

Those statistics aside, many analysts imagine a big second and third quarter for IPO markets with many pointing to the story of Lyft.

Valued at $24.7 billion at offering, Lyft priced at $72 per share on Mar. 28 and currently trades at sub-$60. Lyft remains a hard company to comprehend for markets (and analysts) as risks remain in the ecosystem, most notably with its lack of profitability as demonstrated by the near $1 billion loss in 2018.

Jumia Africa's Amazon
Tunde Kehinde , Co-Founder @ Jumia Nigeria | Photos from the WTO Public Forum 2018 photo gallery may be reproduced provided attribution is given to the WTO and the WTO is informed. Photos: © WTO/Jay Louvion

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Despite all the challenges with Lyft, the initial success of its IPO will light the pathway for other unicorns in 2019.

Uber, Palantir, Pinterest, and Slack all plan to IPO this year and may ultimately be valued at $120 billion, $41 billion, $12 billion, and $10 billion respectively in 2019.

Jumia as an inspiration and warning

The question for Africa is whether its Jumia unicorn is the beginning of a bigger IPO market for Africa-focused companies.

The “Amazon of Africa”, valued at $1 billion at IPO, listed at $14.60 per share and jumped more than 200 percent per share in the initial few days.

Such stock performance has created euphoria in African investment corners as the valuation of the company has skyrocketed above $3 billion, i.e. going north while U.S. unicorn Lyft’s price remains below its offer price.

However, despite Jumia having more than 4 million active customers across 14 African countries, the company continues to bleed cash.

The losses—while nowhere near the level of Lyft or their uber-competitor Uber (pun-intended)—amounted to about $200 million in 2018 with negative cash flows north of $100 million.

The price rise and euphoria may signal a change in market perspective, considering the demonstrated risk of this e-commerce business by way of ongoing losses and inherent challenges in furnishing e-commerce options across a very expansive land mass to a very diverse and still relatively poor populace.

Looking at Jumia’s disclosed data, online sales in Africa remain less than 1 percent of total retail sales, which does not compare to the 24 percent similarly calculated in China.

The market perspective appears very forward-looking with investors bidding up Jumia’s (and hopefully other Africa-focused businesses’s) ability to tackle Africa’s challenges and make money while doing so.

This optimism is a good indication for other African unicorns that most analysts are not discussing or, due to lack of disclosed data, cannot have a true perspective on.

The known unicorns include Andela and Interswitch.

Andela recruits African software engineers, staffs and trains them on its campuses in Kenya, Nigeria, and Uganda and thereafter hires them out as full-time ‘distributed teams’ to companies across Africa and the globe. It is currently servicing more than 200 companies.

The company—recently valued somewhere between $650 and $700 million during a financing round with Generation Investment Management (the investment fund co-founded by former U.S. Vice President Al Gore)—has hired north of 1,200 African developers in the past four years.

Interswitch will be worth more than a $1 billion as a digital transaction platform in Africa, according to some investors.

Being technology-enabled is key in Africa

Technology-enabled businesses drive African growth and will underpin African unicorns in the coming years.

The African power base is being heavily supplemented by solar power solutions.

Uganda-based Fenix—acquired in late 2017 by Engie, a France-based global energy company—sells solar power kits enabled by mobile payments.

Kenya-based M-Kopa also provides solar-powered electricity and storage solutions to the region with financing options for households via mobile money payments.

M-Kopa has sold about 5 times as many household kits as Fenix.

Another player, U.K.-based BBOXX, distributes solar kits via agents in multiple African countries. The market can expect one of these technology-enabled power companies to become a unicorn.

Telecom will also be in the discussion in the coming years.

Liquid Telecom, a unit of Econet that owns about 25,000 miles of cross-border fibre networks in Africa, is expected to list in 2019 or 2020.

Helios Towers abandoned its IPO plans in early 2018 but many analysts expect the African mobile network operator—valued at approximately $2.8 billion—to return to the IPO market when the excitement picks up again.

Formed in December 2009, Helios Towers owns about 6,600 towers in the Democratic Republic of Congo (DRC), Ghana, and Tanzania and recently bought a majority stake in SA Towers, with plans to build at least 500 towers across South Africa.

African telecom company Eaton Towers also postponed an IPO in 2018 but should return to the market in due time, with private equity firms in the structure seeking to exit similar to those firms in Helios Towers.

The business is expected to garner an approximate $2 billion valuation through an offering in London and Johannesburg.

IHS Towers, which is partly owned by MTN Group, is reportedly looking at a valuation of $10 billion when it potentially lists in the near future.

Whenever the remaining unicorns come to the market for Africa, global investors will get a chance to access the African growth story (likely assumed too risky previously for the appetite of many investors).

As these investors get a rather quick information download and re-introduction to the African space, other funds and startups will likely benefit with international investors looking to invest earlier in African companies with their eyes on bigger returns as a result.

If this is the case, Jumia may be the jumpstart to African investment after several years of depressed African private equity fundraising and overall private investment.

That would be the ideal outcome from the post-Jumia euphoria (if there ever is a post-euphoria).

Kurt Davis Jr. is an investment banker with private equity experience focused on Africa, the Middle East, and Turkey. He earned an MBA in finance, entrepreneurship and operations from the University of Chicago and J.D. in tax and commercial law at the University of Virginia’s School of Law. He can be reached at kurt.davis.jr@gmail.com