Shares of Jumia Technologies (JMIA) are sliding following quarterly results and as the e-commerce brand's CEO Sascha Polgnonnec acknowledged that there were instances of improper orders been placed on the platform and then canceled. Back in May, short-seller Citron Research accused the company of fraud and said the shares were "worthless."
RESULTS: On Wednesday, Jumia Technologies reported second quarter revenue of EUR39.23M versus EUR24.79M last year and adjusted EBITDA of (EUR44.4M) versus (EUR35.6M) last year. Active customers totaled 4.8M compared to 3.2M in last year’s quarter and 4.3M in the first quarter, the company said. "During the second quarter of 2019, our GMV increased by 69% year-on-year and our Gross profit grew by 94%. Our Adjusted EBITDA loss as a percentage of GMV decreased by 562 basis points (5.62 percentage points) and our Operating loss, amounting to EUR66.7M, decreased as a percentage of GMV by 148 basis points (1.48 percentage points)," Sacha Poignonnec and Jeremy Hodara, co-CEOs of Jumia, said.
IMPROPER ORDERS: During the company's earnings call, Jumia CEO Sacha Polgnonnec acknowledged that there were instances of improper orders been placed on the platform and then canceled, and that Jumia was disclosing such as it "values transparency." According to the company, and as disclosed in the prospectus dated April 11, Jumia Technologies received information alleging that some of its independent sales consultants, members of its JForce program in Nigeria, may have engaged in improper sales practices. In response, the company launched a review of sales practices covering all countries of operation and data from January 1, 2017 to June 30. In the course of this review, the company identified several JForce agents and sellers who collaborated with employees in order to benefit from differences between commissions charged to sellers and higher commissions paid to JForce agents. The transactions in question generated approximately 1% of GMV in each of 2018 and the first quarter and had virtually no impact on 2018 or 2019 financial statements. The company pointed out that it terminated the employees and JForce agents involved, removed the sellers implicated and implemented measures designed to prevent similar instances in the future.
In an interview with CNBC, CEO Sacha Polgnonnec added that, "when we became aware of some allegations about potential improper sales practices in our JForce program, we started a review – and this was before the IPO – and we identified the three incidents, did the analysis and put the correct action in place. We decided to update the market as we aspired to be very transparent." Asked about Citron's allegations of fraud, the executive highlighted that the review of sales practices started "completely independently" of the short-seller allegations.
CITRON ALLEGATIONS: Back in May, Citron Research said that it has "never seen such an obvious fraud as Jumia." Calling the stock "worthless," Citron added that investors should not rely on reported numbers and a "restatement of financials is on the horizon." Citron said it had obtained a copy of Jumia's confidential investor presentation from October 2018 that was being used to market to investors late last year and "is NOT what they told the SEC," with many "material discrepancies" in reported key financial metrics when comparing the document with Jumia's F-1 filing. "In order to raise more money from investors, Jumia inflated its active consumers and active merchants figures by 20%-30%. The most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled. This was previously disclosed in the company's October 2018 confidential investor presentation."
'BETTER DAYS' STILL TO COME: Noting that Jumia reported "mixed" second quarter results, including gross merchandise volume growth of 69% that was "strong" although it was below expectations and year-over-year revenue growth of 58% that was also slightly below his expectations, Stifel analyst Scott Devitt highlighted that the company "continued on its gradual path to profitability." Regarding the company's findings from a review of several JForce agents involved in improper sales practices in Nigeria as well as improper orders that were placed through the JForce program, Devitt said the impact from these inappropriate activities is relatively small and "better-than-feared," adding that fraudulent activity in non-developed markets is "something all marketplaces deal with." He still sees Jumia's long-term opportunity as highly attractive and "nothing in [Monday's] report changes our view," Devitt kept a Buy rating on the stock, but trimmed his price target on the shares to $28 from $34.
PERFORMANCE SINCE IPO: Jumia Technologies debuted on the New York Stock Exchange in April, with the stock rising almost 80% on the first day of trading. But the enthusiasm did not last long, and the shares are now below its offer price of $14.50.
PRICE ACTION: In afternoon trading, shares of Jumia Technologies have dropped over 15% to $12.52.