Let’s Talk About Jumia’s New Partnership. It’s a Game Changer.

The company’s partnership with UPS marks another step in the right direction.

Jumia Technologies ( JMIA -1.83% ), Africa’s chief e-commerce company, has fallen short of market expectations in recent quarters. As a result, Jumia stock has shed 77% of its value this past year and is down 75% from its all-time high. The ongoing sell-off has me interested — Jumia remains Africa’s pacesetter in e-commerce and boasts a total addressable market of 1.4 billion consumers based on the continent’s population.

I’m clearly not the only one bullish on the African growth story . United Parcel Service ( UPS -0.46% ), the world’s premier delivery company, recently decided to join forces with Jumia in order to grow its reach on the rapidly developing continent. There are many moving parts that need to come together in order for Jumia to achieve success over the long run. Still, investors should chalk this news up as a victory, as this is just another step forward for Africa’s e-commerce leader. Image source: Getty Images. So, what does the partnership entail?

In early April, Jumia announced in a press release that it would be partnering with UPS to expand delivery services for businesses and consumers across the African continent. UPS will now have access to Jumia’s last-mile logistics infrastructure, which will allow the company to expand its delivery services throughout Africa. The alliance will initially permit UPS to leverage Jumia’s drop-off and pick-up stations in Kenya, Morocco, and Nigeria, with plans to eventually extend the partnership across all of Jumia’s African markets.

The partnership is mutually advantageous — UPS will now be able to widen its reach across the world’s fastest-growing continent, while Jumia will get hold of UPS’ network of logistics solutions across 220 countries worldwide. More importantly, UPS’ decision to collaborate with Jumia confirms the legitimacy of the company’s logistics platform and the growth outlook of the continent. In many regards, the partnership serves as a quantum leap for Jumia and a strong catalyst to help propel the company forward in future quarters. Growth is improving

Apart from the new partnership, Jumia has made great strides in its business as of late. In its most recent quarter, the company grew gross merchandise volume and total sales by 20% and 26% year over year, up to $330 million and $62 million, respectively. Active consumers and total orders also increased to 3.8 million and 11.3 million, respectively, translating to 29% and 40% growth from a year ago.

The fresh growth derives largely from the company’s decision to shift toward selling everyday product categories. In Q4 2019, Jumia’s sales were split equally between phones and electronics, and everyday items. Fast-forward to its most recent quarter, and everyday product categories now represent 65% of total revenue. From a practical angle, it was wise for management to make this transition for the sheer fact that people need to buy everyday products more often than phones and electronics. In turn, this leads to more active buyers and total orders on the platform.

There’s no doubt that Jumia is far away from reaching profitability. The company continues to ramp up its investments in marketing and technology. This has sparked strong growth; however, it has also led to monstrous losses. In 2021, Jumia suffered an adjusted EBITDA loss of $196.7 million, a greater loss than the year prior. Management’s guidance for 2022 suggests that the company will endure an EBITDA loss of between $200 million and $220 million, as Jumia plans to continue investing significantly in expanding its business. Investors will need to be patient and let the company’s investment strategy play out — profitability has been put on the back burner for now. Keep Jumia on your radar

We can’t ignore it — Jumia is an extremely risky investment today. But if you’ve ever been interested in buying shares of the African e-commerce company, there’s no better time than now. Trading at less than $8 a share, Jumia is nearing its 52-week low and may continue to linger around these levels for the foreseeable future.

Investors should probably avoid taking a large position in Jumia at this time. They could start small and wait until the company shows further signs of potential profitability before raising their stake in the stock. Jumia’s long-run potential is glaringly clear, but there are many pieces to the puzzle concerning Jumia’s future success. We’ll have to be patient and let this one unfold. Should you invest $1,000 in Jumia Technologies right now?

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