Jumia, Africa’s largest e-commerce player, went public today on the New York Stock Exchange with a closing price of $25.46 per share, a 75 per cent premium on its initial public offering (IPO) share price of $14.50. While trading has only been in effect for less than two hours, and the stock might not be able to maintain this price range for the rest of the day, this “pop” reflects a big vote of confidence in Jumia and its pan-Africa growth narrative. If the stock continues to hold its value over the next few weeks, other tech and e-commerce players in the wider emerging ecosystem might look to replicate Jumia’s move to go public. With participation from Mastercard who invested over $50 million in the IPO, the company raised just shy of its $200 million target, pricing its stock in the middle of the initial range indicated of $13-$16.
At its current trading price, Jumia is valued at more than $2 billion, representing a 2.1x multiple on 2018’s gross merchandise value (GMV) of about $940 million and 38x multiple 2018’s net revenues of $52 million. That is a substantial premium to Souq’s valuation of $580 million which had very similar GMVs and gross margins when it was sold to Amazon. This is a further indication of a wider disconnect between private and public investors and acquirers, which will likely embolden founders and venture capitalists’ efforts to opt for IPOing over merger and acquisitions options.
While an IPO “pop” is a good indication of public interest in a company, a 75 per cent jump in share price means the company was undervalued by its investment bankers and IPO participating investors, especially considering the stock was not priced at the high end of the range, at $16 per share. This miscalculation insinuates a disconnect between public investors and IPO appetite. Additionally, in light of Lyft’s dismal IPO performance (down 25 per cent from its trading high on 29 March 29), public markets are questioning private market valuations. Companies like Pinterest and Uber are being valued lower than they initially anticipated as they prepare to go public. Bankers and investors in Jumia’s case likely wanted to avoid a disappointing debut, opting to err on the conservative side as they priced this IPO.
Jumia was founded in 2012 by Sacha Poignonnec and Jeremy Hodara, with early support and financing from Germany-based Rocket Internet. It operates across 14 markets in Africa, the largest being Nigeria. The business continues to grow at rates of 50 per cent in topline, as Africa remains a largely untapped market for e-commerce players due to entry barriers resulting from challenges in payments and logistics. Along with socio-political challenges, Jumia gains a big advantage over other existing and prospective market entrants.
Wamda will be publishing a more detailed piece on Jumia’s journey going public towards the end of April.
Changes: Jumia's share price was updated to reflect Friday, April 12th's closing rather than inter-day trading price.