Jumia Technologies AG Q1 FY2021 Earnings Call

Good morning, everyone. Thank you for being here. Welcome to Jumia's conference call discussing the results for the first quarter of 2021. I will now hand it over to Safae Damir, Head of Investor Relations for Jumia. Please proceed.

Thank you. Good morning, everyone. Thank you for joining us today for our first quarter 2021 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 published on March 12, 2021. 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. Thank you very much, and welcome, everyone. Thank you for joining us today. Before we go into the details of Q1 performance, we would like to talk about our strategy. We know that following our recent offering, this is an important question for our shareholders, and we would like to address it upfront. We founded Jumia in 2012, nine years ago, with the vision to connect consumers and sellers and make commerce easier in Africa. We spent the first few years understanding the dynamics of our markets, consumers, sellers, logistics, payments, and then we built the Jumia platform, which we think is uniquely adapted to the specifics of our markets. About three years ago, we decided to set the business on a clear path towards profitability. And we chose to do that instead of growing and scaling as fast as we can because we wanted to ensure that as the business scales, it turns profitable. I believe we've made very good progress on this over the past 18 months. We have significantly diversified our category mix and increased our exposure to product categories that are very relevant to consumers as part of their daily lives. We have also increased the penetration of JumiaPay to 26% of GMV, 37% of orders. On profitability, we've now posted six consecutive quarters of positive gross profit after fulfillment. I think we can now confidently say that we are making money after logistics. For five consecutive quarters, we have been reducing our adjusted EBITDA loss in absolute terms year-over-year. We have several countries that are breakeven before tech and G&A expenses in a number of quarters. And as you are well aware, all this progress has been achieved without specific tailwinds from COVID-19. Finally, of course, we have significantly strengthened our balance sheet, raising a total of $570 million in net proceeds over the past six months, which gives us very strong strategic flexibility. If we take a look at where we are today, we have in Q1 an EBITDA loss of EUR 27 million, which is 20% less than a year ago. Looking at the recent quarters, it's been very much under control. On Page 4, you can see our unit economics have completely changed between 2019 and where we are now. As we continue to drive the business toward everyday product categories, our order value is smaller, but the orders are much more profitable. Our gross profit margin as a percentage of GMV increased by 266 basis points. Fulfillment expenses have gone down by almost EUR 1 in the last two years. Our orders are now consistently generating a positive contribution after fulfillment expenses. We have a gross profit after fulfillment, which is standing at EUR 0.90 in Q1 2021. As you continue down, you will see that those orders take much less marketing to generate. We have increased our marketing efficiency, the sales and advertising per order have doubled since 2019. We are very pleased with this progress in unit economics. We are now positioned well to accelerate usage growth. Our priorities are to accelerate usage growth, continue to deliver profitability milestones, and put more resources behind JumiaPay. What that means for the next few quarters is that we will ramp up investments in sales and advertising as well as technology to support the usage growth and JumiaPay. We're going to do that gradually with the same focus on categories that drive attractive consumer lifetime value and good economics. In terms of usage, it's clear to us that we're going to grow faster on orders and consumers than on GMV. We believe that the everyday categories will continue to outgrow other categories of Jumia. The economic tensions generated by COVID-19 will focus consumer spending even more on essentials. We also have to keep in mind the impact of currency fluctuations. All of this will weigh on GMV growth. However, we believe the growth of orders and consumers will be greater than GMV. On profitability, we will focus on improving our profitability ratios. In the next few quarters, we will measure progress more on EBITDA as a percentage of GMV, and EBITDA per order than in absolute terms. That said, we still think that the total loss for 2021 will be lower than 2020, probably by a small margin. Lastly, we will continue to invest in the geographical case study of breakeven at the local adjusted EBITDA level. Our business model has proven the success of companies like Mercado Libre, Alibaba, and Amazon. The potential of Africa is huge, and we believe we are very well positioned to drive the adoption of e-commerce and payments.

Thanks, Sacha. Hello, everyone. Our focus in Q1 was to drive usage in a selective and thoughtful manner with a robust level of marketing efficiency. This was made possible by the strength of the Jumia brand in the countries where we operate. We had a very good illustration of the Jumia brand strength in the results of the 2020 most influential brand survey in Egypt released by IPSOS in March this year. Jumia ranked 7th among 120 national and international brands in Egypt and ranked number one in the digital and e-commerce category. This high level of recognition by consumers is key to our marketing efficiency. While our annual sales and advertising per annual active consumer declined by 46%, annual active consumers reached 6.9 million, up 7% year-over-year as we continue to acquire new consumers and engage existing ones. In the context of a decrease in the sales and advertising expense per order of 12%, total orders for the quarter reached EUR 6.6 million, up 3% year-over-year. This is a reversal of the declining trend observed over the prior two quarters. The fastest-growing categories in terms of volumes continue to be everyday product categories such as beauty, food delivery, and fashion. We continue to see volume declines in electronics, albeit with a modest recovery in the phone category. Our GMV was down 13%, reaching EUR 165 million in Q1. It's worth noting the material FX impact with the Nigerian naira, Egyptian pound, and Kenyan shilling all declining against the euro in Q1 2021 compared to Q1 2020. On a constant-currency basis, GMV was down 5% year-over-year, while sales and advertising expense was EUR 8.8 million, down 1% year-over-year. Our GMV mix continues to shift towards lower ticket size everyday product categories, which are affordable entry points into the Jumia ecosystem, while ultimately supporting repurchase dynamics. Phones and electronics accounted for 37% of GMV in Q1 2021 compared to 45% in Q1 2020. The average order value decreased by 16% from EUR 29.5 in Q1 2020 to EUR 24.9 in Q1 2021, reflecting the shift towards everyday categories. Our orders are also more profitable, with gross profit after fulfillment expense per order having more than doubled from EUR 0.40 in Q1 last year to EUR 0.90 in Q1 this year. The food delivery and on-demand business is a strategic component of our ecosystem that has performed strongly and where we see significant potential for future growth. We have been operating this business since the inception of Jumia in 2012 and it is now a leading Pan-African platform covering 10 countries and 48 cities. We have long-standing relationships with blue-chip QSR franchisees such as McDonald's, KFC, Burger King, Pizza Hut, and Subway, alongside local restaurant concepts as well as convenience outlets such as grocery shops. This segment accounted for 22% of orders and 9% of the GMV in Q1 2021, and its share has been growing over time, indicating its relevance for our consumers. Our food delivery and on-demand services have been growing strongly over the past three years. Monthly orders on the platform have increased more than fourfold between January 2018 and March 2021. The business has proven resilient in light of significant disruption from the pandemic, recovering above pre-pandemic levels starting from June last year. We are very excited by the momentum we are seeing in our food delivery business and its future growth prospects.

Thank you, Jeremy. Let's start with our monetization metrics. In Q1 '21, marketplace revenue was up 6% and gross profit up 11%. FX headwinds affected these figures materially. On a constant currency basis, marketplace revenue was up 16% while gross profit was up 21% year-over-year. Commissions increased by 9% year-over-year due to an increase in the share of higher commission rate categories. Fulfillment revenue increased by 11% as a result of pricing changes within our cross-border logistics. Marketing and advertising revenue increased by 36% year-over-year, reflecting robust advertiser uptake of our solutions. We piloted the opening of Jumia Logistics to third parties and, during the quarter, over 750,000 packages were delivered, working with over 250 logistics clients. The diversity of the clients we work with reinforces the large addressable market for logistics services in Africa. Moving on to costs, we have driven strong efficiencies throughout the P&L. Gross profit after fulfillment expense reached EUR 6.2 million, increasing significantly compared to Q1 '20, marking our sixth consecutive quarter of positive gross profit after fulfillment expense. Fulfillment expenses decreased on a constant-currency basis, while orders increased. Our pickup station network is an asset that adds significant value beyond logistics. Today, we have over 1,600 stations in our network, driving convenience, cost efficiency, and supporting our online-to-offline strategy, as well as the development of JumiaPay. We are also leveraging our network for cash-in and cash-out transactions. Our path to profitability is supported by our asset-light business model. CapEx in Q1 '21 was EUR 0.4 million, with a cash position of EUR 485.6 million at the end of March '21. This robust position allows us to invest in growth and strategic initiatives.

Thank you, Antoine. Just final thoughts before questions. Everything we've done over the past couple of years and what we intend to do going forward is geared towards capturing this huge market opportunity we see in e-commerce and payment in Africa. We are focused on the long term and strongly believe that the platform we have built is uniquely adapted to our markets to win in the long term. The situation is clear: our unit economics in Q1 are outstanding. All the work we've done on monetization and cost efficiency is really paying off. We've been making money for six consecutive quarters after fulfillment and have consistently reduced our adjusted EBITDA loss. The path ahead is also clear; we want to accelerate growth across the platform towards profitability. We will do this incrementally and guided by consumer needs and market relevance. We're excited by the opportunity in e-commerce and payments, and we are confident that we have the platform, people, and resources to capture this opportunity. Thank you very much for the attention, and we are now happy to take questions.

Our first question is from Aaron Kessler from Raymond James.

A couple of questions. First, just maybe on the seasonality. It looks like it's a little bit more than we expected from Q4 to Q1 in terms of marketplace revenues. Was that primarily just seasonality or were there other headwinds, whether it's COVID or something else in the quarter? And then the 1P revenues as well were a little bit lower. I know that's kind of an intentional shift away from 1P revenues. Is that kind of a new base level we should be looking at for those revenues? Or do you think that continues to drift down from where it is really shifting out of 1P at this point? And then finally, just maybe the use of cash, and congrats on the recent equity raises. Any specific areas you would call out that you're focused on investing with that increased cash position?

Thanks, Aaron. Thank you very much. No particular seasonality in Q1, honestly. This year, nothing really special. The Ramadan started in mid-April, which might create some specific consumer behavior in future years, but nothing out of the ordinary this year. Regarding 1P, it's a good question. We have no objective on how small or big we want 1P to be. It's useful for us and strategic at times, especially in categories where supply is low. 1P currently constitutes around 10% of our GMV, which we are comfortable with, and it could increase if necessary. In terms of cash usage, we will focus on our core business, meaning physical goods e-commerce and food delivery, as well as JumiaPay for new services. Our investments will remain in this core area, and logistics will also require some focus. However, we are not looking to expand geographically in the near future.

Got it. Can you briefly talk about the overlap between food delivery and core retail that you're seeing or maybe how that's increasing?

Yes, it's fascinating to see the overlap growing. More consumers are starting to use both platforms. Previously, our food delivery focused on upper-middle-class consumers, but we are now seeing more of our marketplace customers discovering this service. There is also a big overlap in terms of vendors, with many wanting to offer quick delivery alongside e-commerce. This creates a strong channel for vendors to address impulse and convenience purchases. From a logistical perspective, we have a strong competitive advantage in delivering quickly in urban areas. Our model provides rounds for both e-commerce and food delivery, strengthening our service offerings. Our Jumia Prime subscription program enhances appeal as it provides benefits across both segments, making it attractive for consumers to use both services.

First question on food delivery unit economics. Can you talk about how the unit economics on food delivery and on-demand compares with traditional e-commerce? And can you also discuss the competitive landscape in food delivery?

The unit economics for us are quite attractive, contributing well to our overall results. The average basket size is in the low double digits, around EUR 10 to EUR 15. Commission levels remain around 20%. Logistic costs are generally lower than e-commerce because it's instant delivery. In big cities, costs can be comparable between food delivery and traditional e-commerce. Regarding competition, several players operate in our markets. We have historical local competitors and international players like Uber Eats and Glovo trying to establish a foothold. While competitive, we feel well positioned due to our Jumia brand authority, infrastructure, and extensive experience. We have invested a decade into this business, establishing strong relationships with restaurants and leveraging our logistics, payments, and advertisement relationships effectively.

Can you just explain your increase in trade and other receivables from EUR 10 million to roughly EUR 100 million? Also, regarding GMV, does the EUR 165 million you quote include returns, discounts, and vouchers or is it net? If gross, please provide the net number?

The increase in receivables includes the third tranche of the offering we made in May, and that was received in April, totaling around USD 88 million. The revenues we report are net of vouchers.

Thank you for the questions. This concludes our question-and-answer session. I would like to turn the conference back to Sacha for closing remarks. Great. Thank you very much, everyone, for attending. I am happy to take follow-up questions and look forward to next steps. Thank you very much, and take care. All the best.

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