Jumia Technologies AG Q4 FY2020 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the Fourth Quarter of 2020. After management's prepared remarks, there will be a question and answer session. I'd now like to turn the call over to Safae Damir, Head of Investor Relations for Jumia. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today for our fourth quarter and full year 2020 earnings call. With us today are Sacha Poignonnec and Jeremy Hodara, Co-Founders and Co-CEOs of Jumia; as well as Antoine Maillet-Mezeray, CFO. This call is also being webcast on the IR section of our corporate website. We will start by covering the Safe Harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as amended on July 8, 2020. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I'll hand over to Sacha.

Thank you, Safae. Thank you very much. Welcome, everyone. Thanks for joining the call. I hope that you are all staying safe and well. The focus of our strategy has been very clear and remains unchanged: to build a sustainable platform to capture this great opportunity of e-commerce in Africa. And what we mean by sustainable is to bring indisputable facts and evidence that our business model positions us well to become profitable. And as you can see in our results, here are the facts for the fourth quarter. Number one, we have reduced our adjusted EBITDA loss by 47%. We are now for five quarters in a row profitable after fulfillment at group level. The majority of our countries are now breakeven before G&A. We are growing the usage of Jumia in the categories we have chosen to focus on. We do all of the above with lower G&A expenses and lower sales and advertising expenses. So, overall, we feel very strong about those results, which clearly bring more evidence of the strength of our business model. If we look into a few more details on Page Four on the usage of Jumia, of course, 2020 was marked by the business mix rebalancing towards the highest share of everyday product categories and by a strong focus on efficiency, ensuring that the usage would drive attractive unit economics. We drove down the share of phones and electronics from 66% to 43% of GMV. We achieved improvements in cancellations, failed deliveries, and returns, which went from 30% to 25%, meaning that the usage we drive is more efficient and can be better monetized. GMV and orders, post-CFDR, have been growing by 16% and 19% in all the business outside phones and electronics, which is the business we have deliberately chosen to reduce. On usage for us, it was a year of choice of going selectively and efficiently. JumiaPay's total payment volume increased by 68%, and the penetration has now reached 35% of orders at the group level. We added more than 100 new digital services on the JumiaPay app to bring more relevance and convenience to our consumers. On revenues, marketplace revenue and gross profit increased by 20% and 22%, respectively, and our gross profit margin as a percentage of GMV increased by almost four points, now reaching 12%. And last but not least, we generated significant savings across all cost lines, and we now have a leaner, more efficient cost structure. Fulfillment expenses went down by 10%. Sales and advertising went down by 42%. And G&A, outside share-based compensation, went down by 12%. So if you look at our P&L, we're going to profitable usage. We're increasing the gross profit after fulfillment, while decreasing G&A and sales and advertising. So mathematically, we'll reach breakeven if we continue to do that. In 2019, we set ourselves a clear objective: reduce our loss in absolute terms. And I think it's clear, very clear that we are strongly delivering against that objective. We reduced the adjusted EBITDA loss by 10% in Q1, 26% in Q2, 50% in Q3, and 47% in Q4. This progress was achieved as a result of driving both more profitable usage and lower costs. On Page Six, you can see how we have transformed our P&L over the last few years. In 2019, we were still not making money after logistics. Overall, for every order that was placed on the platform, we were still making a loss. Now you can see how gross profit after fulfillment is continuously increasing, having rebalanced the category mix and leveraging a linear cost base, each order we now generate takes us closer to profitability. At the same time, the cost structure is becoming more efficient across the board. So once again, there is clear evidence about the path to profitability at the P&L level. On Page Seven, if we zoom in on the unit economics for the quarter, our average order value is now EUR29. That's 19% smaller than last year. Every single component of our unit economics has improved. Gross profit per order is up 15%, gross profit over GMV improved by almost four points, and gross profit after fulfillment is now EUR1 when it was EUR0.10 last year. Sales and advertising expenses per order decreased by 33%, and G&A cut down by 28% per order. So a lot of progress has been made, both on the revenues and on the costs. This progress was achieved without tailwind from COVID. We continue to monitor the overall impact on consumer sentiment and spending power. All the actions that we took last year, whether it's the increased focus on everyday categories, the cost efficiencies that we generated, and the proactive capital raised in December, enhance our resilience to macro volatility and position us well for the long term. Our key priority has been helping our people, consumers, sellers, and communities stay safe and function as best as possible through the crisis. Our mission and values drive our actions, and we are immensely grateful to our teams, our frontliners, who have truly embodied these values and acted with incredible resourcefulness and dedication. With this, I'll hand over to Jeremy.

Thank you. Hello, everyone. Our focus in Q4 2020, and in fact, throughout the whole year was to drive usage with a high level of marketing efficiency and in a disciplined and selective manner, favoring the categories that supported consumer lifetime value and profitability. On Slide 11, you can see that in Q4 2020, we continued driving usage with very strong marketing efficiency. Having built over the past nine years, one of the strongest brands in Africa, we can now be much more tactical and efficient in our sales and advertising spend. As we reduced our sales and advertising spending by 34% year-over-year, the GMV was down 21% year-over-year, reaching EUR231 million in Q4. Sales and advertising expenses per order decreased by 33%, while orders declined by 3%. Our annual sales and advertising expenses per annual active consumer decreased by 48% year-over-year, while our annual active consumers were up 12% with both new and returning consumers. It's worth noting that GMV and orders accelerated by 23% and 21%, respectively, in Q4 2020 compared to Q3 2020, supported by the Black Friday event we held in November 2020. Despite a significant reduction in marketing spend, in 2020's edition of the events, we still registered record levels of consumer engagement. Page views across all platforms reached 1.5 billion during the event, a 33% increase compared to last year, and our Black Friday video content registered almost 100 million views, which is three times higher than compared to the 2019 event. This speaks to the relevance of our platform and the content for consumers. One aspect we monitor closely regarding usage growth is cancellations, failed delivery, and return ratios, and the trend of our usage indicators post-CFDR. If you look at Page 12 and examine the full-year 2020 trends, you'll see significant improvement in this ratio, both as a percentage of the GMV and the order. The GMV ratio improved from 30% in 2019 to 25% in 2020, while the order ratio improved from 22% to 16%. This improvement means that our usage is becoming more efficient and a higher proportion of the gross rebates can be monetized, making our marketing investments even more efficient on a net basis. If we consider Page 13 and the impact of the business mix rebalancing, we reduced our reliance on phones and electronics which went from contributing 56% of our GMV last year to 43% this year. In parallel, our average order value decreased by 23% from EUR39 to EUR30, as did everyday categories such as beauty, FMCG, and fashion, which are gaining prominence on our platform and GMV is typically at lower ticket sizes. While smaller in average value, our orders are also more profitable as gross profit after fulfillment expense per order went from a loss of EUR0.10 in Q4 2019 to a profit of EUR0.80 in Q4 2020. In conclusion, regarding usage, we grew where we wanted to and very efficiently. We have a better mix of categories today than a year ago, and much better unit economics. Let's now look at JumiaPay on Page 15. The total payment volume increased by 30% from EUR46 million in Q4 last year to EUR59 million in Q4 this year, taking the platform penetration of JumiaPay as a percentage of the GMV from 15.6% to 25.7% in Q4 this year. On Page 16, JumiaPay transactions increased by 10% from EUR2.4 million last year to EUR2.7 million this year, with transactions above EUR10, which include prepaid purchases on the Jumia physical goods marketplace, and Jumia platforms growing by 55% over the same period. Overall, 33.1% of the orders placed on the Jumia platform in Q4 2020 were paid for using JumiaPay, compared to 29.5% last year. JumiaPay will be the checkout solution that provides our consumers and sellers with a fast payment experience. At checkout, consumers can create a JumiaPay account by linking it to the underlying payment method of their choice. JumiaPay caters to various payment methods in Africa and encompasses more than 15 different underlying payment methods. It is supported by our tech stack that recorded a 99.9% uptime in 2020, including during major promotional events such as Black Friday where the uptime was 100%. The other aspect of JumiaPay that I would like to spend more time on is the JumiaPay app, which is a great way for us to provide consumers with more payment use cases that are relevant to them and drive user engagement and stickiness. On Page 17, we are building the JumiaPay app with a view to making it a destination for a broad range of lifestyle and financial services, all offered on a prepaid basis and powered by JumiaPay. At the end of 2020, the JumiaPay app had approximately 200 services live on the app, offered by 33 partners across five countries in Africa. Since its inception in 2018, the app registered over 4 million downloads and is highly rated by consumers. We are focused on building a diversified category mix on the app, with 43% of the 2020 GMV coming from airtime, 40% from utilities, and internet payments. We are also developing new categories where we see meaningful growth potential, such as financial services, which already accounted for 10% of the JumiaPay app GMV, gaming which accounted for 4%, lifestyle services 3%, and transportation and travel categories, which are still nascent. The development of JumiaPay, whether as a checkout solution, a broader business platform, or the consumer-facing super app, is a key priority for us. While we have accomplished a lot since the MVP of JumiaPay four years ago, we have barely scratched the surface of the payment and FinTech opportunity in Africa, and we believe that we're uniquely positioned to capitalize on this opportunity. Let's move now to monetization on Page 19. In the context of the 21% year-over-year GMV contraction in Q4, marketplace revenue increased by 7% and gross profit by 12% over the same period. Taking a closer look at our core marketplace revenue streams on Slide 20, commissions increased by 19% year-over-year due to an increase in the share of higher commission rate categories, including fashion, beauty, or FMCG, as well as lower promotional intensity. Fulfillment revenues increased by 14% as a result of continued shipping fee adjustments as well as pricing changes within our cross-border logistics. As part of these changes, a portion of the international shipping fees that were previously charged to the sellers are now passed on to the consumers. This change resulted in some of our international logistic revenue being recorded as fulfillment revenue instead of revenue from value-added services. This is also what drove the 27% decrease in value-added services. Marketing and advertising revenue increased by 30% due to the strong pickup by advertisers of Jumia advertising solutions, particularly during the Black Friday, where we ran campaigns on behalf of over 150 different advertisers, including high-profile partners. We intend to further diversify our revenue mix by monetizing not only the transaction and the usage of our marketplace but also the broader assets of our platform. And we're starting to drive revenue from Jumia Logistics. Let me tell you a bit more about it on Page 29. Logistics in Africa are notoriously challenging with multiple hurdles, such as the lack of addresses, the lack of organized capacity, storage space issues, and so on. The pain point Jumia Logistics is addressing is significant and seen by many businesses and industries in Africa. With that in mind, we conducted a pilot in 2020 to open up Jumia Logistics to third parties, whether sellers on the Jumia marketplace or not. Business clients can now leverage the Jumia Logistics platform for their fulfillment needs. As part of this pilot, we shipped almost half a million packages on behalf of more than 270 clients across five countries. For example, in Nigeria, we work with Kuda bank, Nigeria's first mobile-only bank, as one of their preferred logistics partners to deliver payment costs to consumers. In Morocco, we work with Meditel, the local entity of Orange, a leading global technical operator, to deliver SIM cards and activations to consumers. In Kenya, we work with Premier Food, global food and packaged goods producers, to offer logistics solutions from their main warehouse in Nairobi to all their distribution centers across Kenya. The results of the pilot are promising, and the traction we have with our first clients reinforces our confidence in the long-term growth potential of this revenue stream. I'll hand over to Antoine.

Thank you, Jeremy. Hello, everyone. Moving on to costs, I'm now on Page 23. We have been driving strong efficiencies across the full cost structure. Fulfillment expenses decreased by 18% in Q4 2020 compared to Q4 2019, as a result of operational enhancements across all logistics operations. These include the optimization of cross-border shipping metrics, staff cost savings in our fulfillment centers, and a change in our daily repricing model from cost-per-package to cost-per-stop. Additionally, we were able to pass on an increasing proportion of our fulfillment expenses to the combination of consumers and sellers via our fulfillment and value-added services revenue streams. The pass-through of all fulfillment expenses measured at the ratio of fulfillment plus value-added services revenue over fulfillment expense increased from 64% in Q4 2019 to 76% in Q4 2020. As a result, we are pleased to report the fifth consecutive quarter of positive gross profit after fulfillment expense, which reached a record of EUR8.4 million in Q4 2020. Now on Page 24, sales and advertising expenses decreased by 34% from EUR15.5 million in Q4 2019 to EUR10.2 million in Q4 2020. All marketing efficiency metrics are showing strong improvement. Sales and advertising expense per order decreased by 33% from EUR1.9 in Q4 2019, down to EUR1.3 per order in Q4 2020. Annual sales and advertising expense per annual active consumer decreased by 48% from EUR9.2 per annual active consumer to EUR4.8, and sales and advertising as a percentage of GMV decreased by 88 basis points from 5.3% to 4.4%. These efficiencies are made possible by the strength of our brand. They are also attributable to continued enhancements in 2020 through our performance marketing strategy across search and social media channels, including more granular segmentation for target markets, with differentiated campaigns and content for each segment. Our third major cost area is technology and G&A, and we're now seeing meaningful improvements here as the rationalization efforts undertaken in 2019 and 2020 start to pay off. G&A expense, excluding share-based compensation, reached EUR21.8 million, down 36% year-over-year. This was partly a result of staff cost reductions and professional fees savings, largely attributable to the portfolio optimization and cost rationalization initiatives. Moving on to the balance sheet and cash flow items, our profitability is further supported by our asset-light business model. CapEx in Q4 2020 was EUR0.7 million as we operate Jumia Logistics as a platform with very limited CapEx requirements. Net change in working capital resulted in an outflow of EUR1.2 million in the fourth quarter of 2020. For the full year 2020, working capital had an inflow effect of EUR9 million thanks to improved receivables and payables cycles, as well as lower inventory needs. Cash utilization for the quarter, defined as cash used in operating and investing activities, was EUR27.1 million in Q4, compared to a cash utilization of EUR52.9 million in Q4 2019, marking a 49% decrease year-over-year. Cash and cash equivalents at the end of December 2020 totaled EUR304.9 million. We completed a follow-on offering in December 2020, raising EUR203 million in gross proceeds, which helped strengthen our balance sheet and increase operational flexibility as we scale the business towards profitability. With that, I'll hand over to Sacha for concluding remarks.

Thank you. If we step back, our strategy has been to build a sustainable platform to capture this great opportunity of e-commerce in Africa. Bringing these facts and evidence that the business model positions us well to become profitable is key. Why is this so important to us? Because we think we operate what is a proven business model, successful everywhere in the world, akin to Amazon. We have a great macro opportunity, operating in a huge continent which we see as untapped with amazing growth prospects. We have proven that we can operationally overcome the major challenges in Africa, including payments, logistics, and building a marketplace. The remaining point is to ensure that as the business scales, it is profitable. This is why we are so engaged in this phase. We've reduced our adjusted EBITDA loss by 47% last quarter, a clear objective and we delivered on it. We are now structurally making money after fulfillment. In 2019, we weren't making money after fulfillment, and now for five quarters in a row, we are. The more the usage of Jumia, the more profit. It’s clear that the model works. We're still growing, particularly in profitable segments, with GMV and orders growing 15% and 19% respectively, in the business outside electronics. We have a majority of our countries now breakeven or profitable before taking D&A expense. The dynamics of our P&L indicate we're moving towards profitable usage. This has been the strategy; this is our focus, and we intend to continue until we resolve the profitability question. We expect to have enough facts to put the profitability question behind us and then we plan to invest more to accelerate growth. We have a huge opportunity in e-commerce, delivery, payments, logistics in Africa, a continent with over a billion people. With recent results, we feel more confident than ever in the strengths of our business as we clearly see its financial performance coming together. Thanks for listening in, and we are now ready for questions.

Our first question is from Aaron Kessler with Raymond James. Please go ahead.

Thank you. A couple of questions, first from a macro perspective. What do you think will be the catalyst for maybe an inflection in e-commerce adoption across some of your key markets? We've, I believe, seen smartphone adoption increase meaningfully over the last couple of years, which has been a catalyst in other markets for more e-commerce adoption. What do you think will be the key catalyst over the next couple of years? Also, you mentioned leaning back into marketing a little bit. Should we start to see that in early 2021, late 2021, or how are you thinking about the timing of leaning back into marketing? Thank you.

Thanks, Aaron, thanks for the question. On the macro level, it's the million-dollar question. It's important to share a few thoughts. We did not build our business expecting or hoping for an inflection. We've built our business to scale steadily over time. It's not that we are reliant on an inflection point to succeed, but rather we are strategized to thrive regardless of when or if that occurs. That said, we may hit an actual inflection point, possibly fueled by the younger generation who have grown up with mobile devices. These younger consumers won’t have the same barriers as older generations, so we may see a grow in e-commerce adoption as they become prime consumers. However, we are not dependent on that; we can continue operating and growing steadily within our current approach. Regarding timing for increased marketing efforts, we manage that dynamically, so it’s tough to predict exact timing. However, we are becoming increasingly comfortable with our positioning, given that we have been profitable after fulfillment for five consecutive quarters.

Great, thank you.

The next question is from Camille with Renaissance Capital. Please go ahead.

Hi everyone, thanks for taking my questions. Two questions from me, please. Firstly, could you comment on your growth outside the phone and electronics category? I think it was about 15% CFDR last year, which doesn't look particularly high, given the stage of market development. So just wondering what prevents faster growth in your view? Secondly, could you update us on the competitive situation in Egypt? How does your growth compare to the overall market or your main rival? Given tougher competition there compared to other countries, do you need to do anything differently in Egypt regarding marketing or logistics?

Thanks for those questions. On the first one, over the quarters and years, we've appreciated growth alongside marketing efficiency. We've placed significant emphasis on marketing efficiency, reducing expenses by almost one-third. It's important to understand that growth can be a function of both efficiency in marketing and the monetization pressures we're applying. Our growth of 16% is commendable considering the efficiency we've achieved. As we enter the next phase, we anticipate relieving some of these efficiency constraints, leading to faster growth. Regarding Egypt, it remains a significant focus and has been part of our strategy for years. We adapt our marketing approach to the level of competition in each market. In Egypt, we do not use the same pricing pressures as in lower-competitive markets; instead, we adapt our approach based on local specificities. Our recent launch of Jumia Foods in Egypt is a differentiating factor as it expands our relevance, allowing consumers to think of Jumia beyond e-commerce to food delivery. This comprehensive approach drives consumer preference and emphasizes our focus on adaptability and local engagement.

Okay, great, thank you.

The next question comes from Sarah Simon with Berenberg. Please go ahead.

Yes. Hi, afternoon, everybody. I have a few questions. First on marketing spend in Q4, it stepped up versus Q3 as expected seasonally. However, customer growth didn’t increase significantly. What did you spend the marketing money on? Secondly, gross profit after fulfillment expenses is growing well. But to reach breakeven, you would need fourfold growth, while you are not growing that fast at the moment. How do you weigh the idea of a steady path to breakeven against a more aggressive growth push which would require more capital? Finally, regarding GDP sensitivity to post-pandemic effects, would you agree that the focus on small and everyday items makes you less reliant on GDP trends compared to larger items, like mobile phones?

Thanks, Sarah. I agree with your standpoint regarding our positioning in the everyday category, which aids resistance against economic volatility. However, we still have exposure to high-value categories like electronics, which can impact us if the economy declines. In 2020, we demonstrated relevancy in a fluctuating market. Our diverse portfolio across many categories ensures multiple revenue streams. On marketing spend, it’s crucial to note the need for cautious comparison between Q3 and Q4, specifically regarding trailing 12-months consumer growth. Our spending encompasses a mix of data-driven efforts, focused on driving both new downloads and re-engagement of previous users through retargeting. Additionally, local engagement through initiatives like JForce plays a role in educating consumers about Jumia and how to utilize our services. For Black Friday, we allocate some traditional offline marketing expenses. To achieve profitability, we can leverage both increased usage of Jumia and monetize our platform assets. That includes ventures like Jumia Advertising and Logistics. As we've been successful in launching these efforts, we have multiple avenues to increase gross profit. Regarding shipping costs from China, we acknowledge that rising freight and trade costs are challenges. However, these factors don’t define our business as a whole. We utilize data science to determine optimal pricing strategies while ensuring we balance cost pass-through effectively between consumers and sellers.

Thanks a lot.

This concludes our question and answer session. I would like to turn the conference back over to Sacha for any closing remarks.

Thank you very much as always for your support in attending, and we are very committed to explain what we do and talk more. We appreciate that we are a young company, now two years listed. Please reach out to discuss and explain further what we do. Thank you and stay safe. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.