Jumia Technologies AG Q1 FY2022 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia’s Results Conference Call for the First Quarter of 2022. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. I would 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 first quarter 2022 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 April 29, 2022, as well as our other submissions with the SEC. 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 very much. Welcome, everyone, and thanks for joining us today. Before going into the specifics of performance, I would like to briefly remind you of our current strategy on page 3. We are currently focused on scaling our platform in order to build a fast-growing and profitable business in e-commerce and fintech in Africa. We have built very strong foundations for our platform, tailored to the specifics of our markets in Africa: the marketplace, the logistics platform, JumiaPay, and payment and fintech solutions. We played the long game from the very beginning to position us for long-term growth and profitability. With this in place, we focused on building robust unit economics. The sequencing here is very important. We wanted to first set solid unit economics for the business before accelerating growth. We reached the important milestone of positive order contribution after logistic costs, and it’s now been the case for 10 consecutive quarters. In parallel, we strengthened our balance sheet, raising $517 million in 2021 and 2020. And we worked on enhancing the diversity and the relevance of our marketplace. Now, two-thirds of our GMV is coming from everyday product categories. On that basis, with a strong platform and strong unit economics, we are now scaling the business towards profitability. The three key building blocks to achieve profitability are: number one, accelerating usage growth; number two, accelerating monetization; and number three, improving cost efficiency. Of course, JumiaPay remains a priority for us to drive long-term value creation. Now, let’s go into our quarterly highlights. In Q1, we’ve delivered strongly on each of those building blocks. Page 4, accelerating usage growth. In Q1, we posted the fastest year-on-year GMV and order growth of the past nine quarters, 27% and 40%, respectively. Next page, accelerating monetization. Excluding consumer incentives, which are marketing investments, revenue and gross profit year-over-year growth rates also reached their highest levels over the past nine quarters, 56% and 31%. Number three, next page, improving cost efficiency. Sales and advertising per order and as a percentage of GMV, both reached their best levels of the past four quarters, $2 per order and 7.5% of GMV. This improvement is taking place while we are accelerating usage growth. Consumer incentives efficiency. Consumer incentives are accounted for as revenue deductions. This efficiency is also improving sequentially, reaching 15% in Q1, compared to 18% in the third and fourth quarters of 2021. This is very much in line with what we communicated to the market in our last review. Back then we said that the focus for sales and advertising over the subsequent quarters would be to increase the efficiency. And that’s exactly what we achieved in Q1. Finally, before going into more details, let’s move to page 7, our adjusted EBITDA loss. We have of course, been closely monitoring the fundamental macro and market shifts, which have been taking place over the past few months and which are still unfolding. We are very confident in our path and execution towards profitability. In terms of adjusted EBITDA, we believe we are past the peak of quarterly adjusted EBITDA loss that was reached in Q4 2021. We also reiterate the guidance of $200 million to $220 million adjusted EBITDA loss for the full year of 2022. Starting from 2023, we expect to begin decreasing the adjusted EBITDA loss on a year-over-year basis. Now, I’ll hand over to Jeremy to give more color and highlights of our Q1 results.

Thank you, Sacha. Hello everyone. So, we are on page 9. We are executing with consistency and discipline to accelerate the usage growth. Our overarching objective continues to be further enhancing Jumia as the digital destination for everyday needs and occasional purchases in Africa through a combination of marketing, commercial, logistics, and technology levers. On marketing, we continue our investments in consumer adoption and retention. Brand awareness is crucial, particularly as we operate nascent e-commerce markets. We are very pleased to see Jumia ranked number six in the 2021 Most Influential Brand survey in Egypt by Ipsos, out of a total of 118 international and local brands, up from seventh position the year before. Importantly, we came number one in the digital and e-commerce category for the second year in a row. This is a very good achievement, as Egypt is our second largest market and the one where we operate alongside Amazon. This is a testimony to the strong execution of our team on the ground. I want to salute them for their efforts. We’re also incredibly grateful to our customers for their trust, and we continue to work very hard on bringing them more convenience and relevance. On commercial, we’re focusing our execution on further penetrating the everyday product categories. In Q1 ‘22, we added almost 1 million SKUs in the FMCG category, the highest number of SKU adds in this category in the past eight quarters. We continue to work very closely with brands. An example of that is the pan-African partnerships we established with each of Coca-Cola and Danone across both our e-commerce and food delivery platforms. On logistics, our current execution focuses on further improving the speed of delivery and its cost-effectiveness. For example, we’re running out next-day free shipping on Jumia Express items for basket sizes above the minimum threshold. Jumia Express is an end-to-end logistics service provided to sellers, where items are stored in our warehouse and picked and packed by Jumia. In Q1 2022, while we were still in the early days of this rollout, we already had 57% of shipments reaching consumers within 24 hours of order placement. Last but not least, technology enhancement is a key area to accelerate usage growth. Thanks to increased tech headcount, we’re accelerating product development and new feature rollout. In Q1 2022, we released a revamped version of our homepages and product description pages for a more easy-to-use and engaging experience on the platform. The consistent execution on these four levers is what’s driving the strong growth acceleration that you can see on page 10. On page 10, first, in Q1 2022 versus Q1 2021, we had more consumers buying more often. That’s exactly the kind of play we want to see on our platform. Quarterly active consumers reached 3.1 million, up 29% year-over-year, as a result of robust increases in both new and returning customers. We have been driving a consistent increase in quarterly purchase frequency over the past five quarters, reaching three orders for quarterly active consumers in Q1 this year, compared to 2.7 orders in the same quarter the year before. Second, we posted in Q1 the fastest order and GMV growth rates of the past nine quarters, with orders accelerating by 40% year-over-year, reaching 9.3 million. We also posted strong GMV growth, receiving $252.7 million, up 27% year-over-year, and 35% on a constant currency basis. Just to give you a bit more color on the FX dynamic this quarter, we had 10 of our 11 local currencies depreciating against the dollar, particularly the Nigerian naira, the West African CFA franc, and the Moroccan dirham, depreciating by 9%, 7%, and 6% respectively against the dollar in Q1 this year compared to Q1 2021. Regardless of the FX volatility, there is very strong broad-based momentum across the business. On page 11, you can see that all product categories are growing in both GMV and items sold terms. Despite the volatility in the supply chain situation for phones and electronics, we drove positive inflection in Q1 in these categories, which contributed to both GMV and items sold growth. The everyday product categories continue to be important growth drivers, and I’d like to call out the FMCG and food delivery categories, which really stood out in terms of volume growth in Q1 2022. FMCG was up 180% year-over-year, while food delivery was at 86% as we leverage both our e-commerce and food delivery platforms to meet the everyday needs of consumers for food items and staples. The strong volume growth in these categories is also translating into larger GMV growth, with FMCG and food delivery growing by 75% and 61% year-over-year, respectively. The focus in the everyday product category over the past two years drove a fundamental shift in GMV. On page 12, you can see that phones and electronics went from accounting for 45% of GMV in Q1 2020 to 33% in Q1 2022. In contrast, both JumiaPay app services and food delivery saw the contribution to GMV increase by 4 percentage points over this period, from 9% to 11%, respectively in Q1 2022. Within the everyday product categories, the home and fashion categories remained consistently the largest two product categories, each coming in a mid to high teens share of the GMV. Average order value stood at $27 in Q1 as we further penetrate more affordable smaller ticket size categories. This strategy of increased product category diversification in favor of everyday items is not only a major driver of growth acceleration but is also providing more resilience to our business model as we increase our exposure to staple categories. This is crucial in periods of macro volatility, such as the one we are currently going through. Compared to a couple of years ago, our platform is now bigger, faster, and much more diversified and resilient. Let’s now move on to another key priority for us, which is JumiaPay on page 14. We achieved a major milestone in Q1 as we were granted by the Central Bank of Nigeria a Payment Service Solution Provider license or PSSP license. This is an instrumental license that will allow us to start offering JumiaPay payment processing solutions off-platform in Nigeria. We have now obtained the relevant licenses to start off-platform payment processing in our two largest markets, Nigeria and Egypt. We intend to scale the business progressively and in a disciplined manner to ensure the quality and safety of payment solutions for merchants and consumers, both on and off-platform. Over the next few months, we’ll be focused on adapting our payment product suite for an off-platform environment and building out additional relevant features for third-party merchants. In parallel, we continue expanding the range of digital and financial services available to consumers on the JumiaPay app. We have provided here the example of an e-doctor service that we’re piloting in Nigeria, allowing consumers to access doctors remotely for a monthly subscription fee of $1. This initiative is in partnership with the Consultative Group to Assist the Poor (CGAP), a global partnership of more than 30 leading development organizations, as well as Meeting Doctors, a digital health service provider. Let’s now move on to the performance of JumiaPay on-platform, starting with TPV on page 15. JumiaPay TPV increased by 37% year-over-year and 45% on a constant currency basis. Despite the FX headwind, TPV posted its fastest growth rate in USD terms of the past five quarters, supported by the strong growth in GMV. TPV penetration as a percentage of GMV reached a new high of 28% in Q1, up from 26% in Q1 the year before, as we focus on increasing the penetration of JumiaPay in a disciplined and gradual manner. Turning to transactions on page 16. JumiaPay transactions reached 3.2 million in Q1, up 32% year-over-year, supported by accelerating volume growth across the business and in the food delivery category in particular. Overall, 34% of orders placed in Q1 2022 were completed using JumiaPay compared to 37% in Q1 2021. Here, I want to flag that we did increase JumiaPay transaction penetration as a percentage of orders across the Jumia e-commerce and food delivery platforms. We see very good transaction momentum in our e-commerce and food delivery platforms, where JumiaPay transaction growth outpaced the growth of JumiaPay app transactions. Because JumiaPay penetration is 100% on the JumiaPay app, the reduced share of JumiaPay app in the transaction mix led to a decline in the overall JumiaPay transaction penetration as a percentage of orders. Overall, the growth momentum of JumiaPay on-platform is very robust, and we are very excited to embark on the next phase of our journey in payments as we prepare to take our payment solutions off-platform. I now hand over to Antoine, who will walk you through our financial performance in more detail.

Thank you, Jeremy. Hello everyone. I will start with the monetization performance, which illustrates the progress and the second building block of our path to profitability: accelerating monetization. We want to balance such usage growth with robust monetization of our platform as we build a diversified monetization engine. That’s exactly what we achieved in Q1 ‘22. On page 18, you can see that as we posted strong usage growth, we delivered the fastest revenue and gross profit growth rates in over two years, excluding consumer incentives, which are marketing investments in nature, at 56% and 31% year-on-year, respectively. FX was a headwind to top-line growth this quarter. So, on a constant currency basis, these rates are even higher at 65% and 38% year-on-year, respectively. Let’s now unpack revenue growth dynamics on page 19. As a reminder, we have three main revenue components. The first one is the first-party revenue that we earn on business undertaken on a first-party or retail basis. The second one is the marketplace revenue, which are the various fields we generate from our third-party activities. The third component is other revenue, which at this stage mainly includes revenue from our logistics-as-a-service activity launched in 2020. These buckets will include, in the future, revenue from off-platform payment processing, once this activity is up and running. In terms of revenue trajectory, we observed three main things: first, the strong revenue growth, up 44% from $33 million in Q1 ‘21 to $47.6 million in Q1 ‘22. The growth was even stronger in constant currency, down at 53% year-on-year. Revenue growth was supported by a strong acceleration in first-party revenue, which was up by a factor of 2.5 as we undertook more business on a retail basis within our grocery category. Second, we are seeing very good traction in our newer monetization streams such as advertising or logistics-as-a-service, which is a major part of other revenue. Third, this revenue growth momentum is giving us the flexibility to invest into growth in the form of consumer incentives, including sales discounts, shipping discounts, and free shipping. Let’s now dive deeper into the various components of marketplace revenue on page 20. Excluding the impact of consumer incentives, marketplace revenue was up 25% year-on-year and 32% on a constant currency basis. This was supported by the strong momentum in value-added services and marketing and advertising revenue streams. Value-added services increased by 49% year-on-year, partly as a result of an increase in international logistics revenue. Marketing and advertising was up 40% year-on-year, supported by an acceleration in the number of advertising campaigns, which was up 55% year-on-year, as we ran over 480 campaigns on behalf of almost 9,000 advertising clients. Advertising clients during the quarter included high-profile brand partners such as Unilever, L’Oréal, Adidas, Xiaomi, Coca-Cola, Krispy Kreme, Burger King, and many more. Commissions and fulfillment revenue are both impacted by consumer incentives. Excluding this impact, Commissions revenue was at 29%, driven by usage growth, while Fulfillments revenue was at 4%, as we chose to reduce the shipping pass-through to customers. Moving on to gross profit on page 21. We drove a significant step-up in gross profit before the impact of consumer incentives, which accelerated by 31% year-on-year and 38% in constant currency, while the margin as a percentage of GMV reached 13.8%, up almost 40 bps year-on-year. We are leveraging the strong level of underlying monetization to invest more into price competitiveness and shipping discounts, allowing us to increase the amount of consumer incentives from $2.1 million in Q1 ‘21 to $7.2 million in Q1 ‘22. Going forward, the growth in monetization will be partly reinvested to fund our free shipping initiative. Even after the impact of consumer incentives, the growth trajectory in monetization over a two-year period is very strong. Between Q1 ‘20 and Q1 ‘22, gross profit was up 36%. We are all very pleased with the strong monetization performance in Q1 ‘22 and are even more excited by the new revenue streams we are developing. In this context, I would like to give you more color on page 22 on one of these new revenue streams, our logistics-as-a-service offering. At the beginning of our journey, logistics was one of the most challenging aspects of our operating environment with multiple hurdles, such as the lack of addresses, lack of organized and reliable capacity, storage space issues, and the predominance of cash on delivery. Ten years into our journey, we can confidently say that we’ve cracked most of these issues. We have built a tech-rich asset-light logistics platform with strong reach across all countries of operation. Our network counts over 700 logistics partners that we manage and integrate into our platform through a dedicated tech stack. We also have an extensive physical network of 50,000 square-meters of warehousing space, and we have 3,000 drop-off and pickup stations. Today, we are in a position to help other businesses overcome these infrastructure challenges by giving them access to our logistics platform. We offer end-to-end logistics services from warehousing and pick packing to door delivery and payment collection with full visibility and tracking of the journey of the package. Our offering is familiar and can be adjusted on an account basis to suit the needs of our logistics clients. We are seeing very good demand from the sales. The number of packages shipped in Q1 ‘22 reached a new record of 3.5 million, generating over $1.2 million in revenue from more than 1,250 clients. Let’s now move on to costs, starting with fulfillment expense on page 24. Fulfillment is largely a variable cost and evolved in line with volumes in Q1 ‘22. As we grew orders by 40% year-on-year, fulfillment expense was up 42% and 50% on a constant currency basis. Here I would like to point out that fulfillment expense includes both the cost associated with Jumia platform orders and the cost associated with our logistics-as-a-service offering. The number of packages within this activity increased significantly from 0.8 million in Q1 ‘21 to 3.5 million in Q1 ‘22. Moving on to sales and advertising expense on page 25. As mentioned by Jeremy earlier, marketing investments are a core lever to drive usage growth. And we continued increasing these investments on a year-on-year basis in Q1 ‘22. Sales and advertising expense reached $18.8 million, up 94% year-on-year and 99% on a constant currency basis. That’s in the context of a very low account base over the past two years, with sales and advertising expense significantly curtailed in 2020 and up until the middle of 2021. When we take a three-year perspective, the Q1 ‘22 sales and advertising amount is modestly above pre-pandemic levels, with the three-year CAGR of 12%. The main change is the channel mix of marketing investments, with an increased share allocated to above-the-line channels, such as TV, radio, video advertising, et cetera, from 28% in Q1 ‘19 to 37% in Q1 ‘22. When we look at the sequential trends over the past nine months, we can see that we are slowing down the pace of marketing investment increases from 228% and 159% year-on-year in the third and fourth quarters of ‘21 to 94% year-on-year in Q1 ‘22. As we move beyond the initial phase of marketing ramp-up in H2 ‘21, we are stabilizing the levels of marketing investments and starting to generate better marketing efficiency. On page 26, we can see significant improvements sequentially in marketing efficiency metrics. Sales and advertising expense per order and as a percentage of GMV both reached in Q1 ‘22 their lowest levels in four quarters at $2 per order and 7.5% of GMV. This is an important development in our progress towards profitability, as we are now scaling the business while improving marketing efficiency. Moving on to technology and G&A cost on page 27. Technology continues to be an important area of investment for us to support the long-term growth of our business, both on the e-commerce and payment fronts. Technology expense reached $13 million in Q1 ‘22, up 56% year-on-year and 62% on a constant currency basis, as we increase technology headcount to support innovation and product development. G&A, excluding SBC, reached $13.1 million in Q1 ‘22, up 23% year-on-year and 30% on a constant currency basis. This is mostly due to increased hiring in the second half of ‘21 to strengthen the management team in selected areas to support the long-term growth of the business. On a sequential basis, G&A excluding SBC was down 6% compared to Q4 ‘21. We believe we have the right team structure at this stage and expect the G&A base to remain relatively stable going forward as we reinforce strong discipline on hiring and overhead costs. Turning now to adjusted EBITDA loss on page 28. Adjusted EBITDA loss reached $55.3 million in Q1 ‘22, up 70% year-on-year and 76% on a constant currency. The year-over-year comparison is impacted by a low base in Q1 ‘21, where adjusted EBITDA loss was down 17% year-on-year. Importantly, as mentioned by Sacha earlier, we believe we are now past the peak of adjusted EBITDA losses, which was reached in Q4 ‘21. Let’s now move on to balance sheet and cash flow items on page 29. CapEx in Q1 ‘22 was $1.7 million. We are yet to see the effect of logistics investments as we guided towards $15 million to $25 million of CapEx in 2022 for logistics capacity expansion and upgrades, which will be mostly carried out over the second half of ‘22. That change in working capital resulted in an outflow of $23.4 million in Q1 ‘22. Historically, working capital had a relatively neutral cash flow impact on a yearly basis. That said, it can be impacted quarterly by cutoff effects and upfront prepayment. This was the case in Q1 ‘22, where we paid upfront for the cost of yearly hosting services to take care of better pricing. Cash utilization for the quarter was $78.2 million in Q1 ‘22, impacted by the working capital outflow during the quarter. At the end of March ‘22, we had a liquidity position of $421 million, comprised of $89 million of cash and cash equivalents and $333 million of term deposits and other financial assets. With that, I’ll hand over to Sacha for concluding remarks.

Thank you, Antoine. Thank you, Jeremy. I believe we had a very strong quarter in executing our strategy to scale the business toward profitability, and it was especially important as we saw immediate results from the three building blocks on our profitability path. We have clear initiatives in place to make even more progress in each area. Regarding usage growth, it's clear that profitability requires a larger scale, something we've communicated several times before. In the first quarter, we experienced significant growth, achieving the fastest rates of order growth and GMV growth in the last nine quarters. Looking ahead, we plan to sustain this positive momentum in usage growth by continuing our efforts across all relevant business areas. This means not only maintaining our marketing investments and improving their efficiency but also advancing the excellent work we've done in everyday product categories. We're also enhancing our logistics, rolling out next-day free shipping and free delivery on Jumia Express, and continuing to enhance our technology to provide consumers with a more seamless and engaging platform experience. For monetization, we aim for larger scale to drive increased revenues and gross profit. We do not support a growth model that prioritizes scale without a solid monetization strategy. In Q1, excluding consumer incentives, we saw the fastest revenue and gross profit growth rates in over two years. There remains significant potential to further accelerate monetization, leveraging the diverse engines we've built. Specifically, we grew first-party revenue by over 80% year-over-year in the past nine months, which allows us to enhance margins and negotiate volume rebates with suppliers. The same principles apply to our marketplace, where we are leveraging increasing usage growth to boost monetization. Over the last nine months, we've enabled significant growth for our third-party sellers and are now positioned to raise commission take-rates in several categories. We've already begun this process, but will do so gradually and carefully. The rollout of free next-day delivery on Jumia Express will also support increasing monetization opportunities within that segment. Additionally, we see more opportunities for monetization in advertising and logistics-as-a-service, which are still in early stages but showing promising traction. Furthermore, we've now obtained licenses in Egypt and Nigeria to operate the JumiaPay platform, which offers a long-term revenue growth opportunity. While it is not essential for reaching breakeven, it provides additional monetization potential and flexibility in our pursuit of profitability. Concerning cost efficiency, in Q1, we saw improvements in our marketing efficiency, measured both per order and as a percentage of GMV, reaching the lowest level in four quarters. There is still significant potential for further efficiency gains in marketing, along with generating operating leverage through technology and G&A with strengthened cost discipline, especially across overheads. For full-year 2022, we remain focused on these three building blocks. We want to reiterate and expand on the guidance given in the previous quarter, expecting further acceleration in year-on-year GMV growth compared to the 15% growth seen in the second half of last year. We plan to stabilize our marketing investments, confirming an expected spending of between $50 million and $55 million on sales and advertising for the first half of 2022, comparable to the $55 million spent in the second half of 2021. We also expect to invest between $15 million and $25 million in CapEx this year, remaining disciplined with cash as we aim to strengthen the long-term platform. This CapEx will focus on our logistics platform, enabling greater reach, faster delivery, and better cost efficiency in the future. We expect an adjusted EBITDA loss for the full year to be between $200 million and $220 million, compared to $197 million last year. Quarterly, we believe we've surpassed the peak of adjusted EBITDA loss from Q4, and starting in 2023, we anticipate a year-over-year decline in that loss. Before the Q&A, I want to highlight the vast opportunities we are pursuing and the significant impact we’re having across the continent. We see decades of growth ahead as millions of new consumers enter the market in the coming years. The market potential is enormous. In the next 20 to 30 years, Nigeria will be the third most populous country globally, following China and India. Egypt is a remarkable market as well. We've spent years building a platform to serve these consumers, which is a challenging and unique endeavor. We hold a strong position in our market, as evidenced by being the leading e-commerce brand in Egypt. Our current focus is on progressing toward profitability while establishing a foundation to capture long-term opportunities. Ultimately, we are enhancing the lives of millions of consumers and sellers across the continent. Thank you for your attention. We're now ready for questions.

Thank you. Our first question is from Aaron Kessler with Raymond James.

Great. Thank you. A couple of questions. Maybe first, just on the consumer incentives. Now that you’ve been running the consumer incentives for a couple of quarters now, can you talk about maybe the effectiveness of that and the conversion rate and the ROI of those customers that are using consumer incentives in terms of repeat shopping, et cetera? And then just maybe on the lower sales and marketing spend in the quarter, are you finding more marketing efficiencies versus prior quarters, or is that just maybe a step down more due to kind of Q1 seasonality? Thank you.

Thank you, Aaron, for your excellent questions. Consumer incentives are fully integrated into our marketing strategy aimed at enhancing long-term customer lifetime value. We focus on various stages of the consumer journey, starting from boosting awareness of Jumia, to encouraging adoption, and ultimately fostering loyalty and repeat purchases, which contributes to overall customer lifetime value. We employ a range of consumer incentives, such as price reductions on selected products to encourage adoption and repeated purchases. Additionally, we offer coupons and vouchers targeted at different consumer segments to achieve specific objectives, like introducing them to new product categories or promoting Jumia Express for first-time purchases. We also implement shipping fee reductions through free shipping programs. These strategies are key components of our efforts to drive long-term customer lifetime value. We began increasing our investments in consumer incentives alongside our sales and advertising efforts, particularly around Q2 of last year. We've learned a lot and will continue to optimize our approach. We are seeing strong efficiency in these investments, which gives us confidence that they are positively impacting customer lifetime value overall. Regarding sales and advertising, we are standardizing our investments from the second half of the year. Typically, we experience some seasonality in Q1 due to the New Year and post-holiday spending, but the improvements in efficiency we are experiencing are robust enough for us to feel confident in our ability to maintain and improve over time.

Our next question is coming from Lamont Williams with Stifel.

The first question I have is, what are you seeing from your buyers on the platform in the midst of some of the macro challenges, the high inflation and whatnot? And what do you expect you’ll see kind of as we go through the balance of the year? And then, I have a follow-up.

Yes, I mean, it’s a very important question. I think it’s still unfolding in many ways, right? There are many things happening almost on a daily basis impacting consumers, supply, prices, and so on, as you mentioned. Look, at the end of the day, we are exceptionally well positioned because we are offering a very wide range of products. We are offering solutions and access to relevant products in the everyday categories, and we have very competitive prices. So, we are a reflection of supply, and whatever disruption is happening on supply will impact it everywhere. But the beauty of Jumia is that we bring this amazing assortment, we bring an amazing experience, and we offer very good prices. Consumers will still need to buy everyday products, and if at all, when there is more pressure on prices and on their wallets, consumers become more discerning; they compare options more. I think that positions us very well, right? We are confident that whatever happens, we remain relevant, and we will be relevant given our positioning and value proposition. Now, some categories will suffer, right, and some categories will see consumer trading down, and more consumers will delay some purchases. We know not all categories will perform well this year. But we will do well because we are well positioned on everyday categories especially.

Okay. And then, on a more long-term question. You talked about a couple of interesting off-platform initiatives with JumiaPay. How are you thinking about the monetization over time? Is there any kind of timing around that, and what can we expect to see develop over time?

Yes, I mean, we are starting to see growth on both platforms. We have advertising that’s more on-platform, but we also have JumiaPay, logistics, and advertising. I think all of these areas are moving well. We can see good growth rates this quarter. We are rolling out solutions to help brands advertise on Jumia. I think this area will continue to demonstrate impact and growth going forward. The second aspect is logistics. We start to display some numbers, and we’ve seen the number of packages we shipped this quarter reach over 1,000 clients, generating over $1 million in revenue. I think this is moving well. We see long-term opportunity in logistics. It is no secret that logistics in Africa is very challenging. We’ve developed something that is unique. For example, 57% of our shipped packages reached consumers within 24 hours in Africa. This is exceptional. We will continue to develop this asset and bring more numbers. We don’t give specific guidance just yet because it’s still early days. As we gain visibility, we will provide more guidance. For now, we will stick with the numbers as they are. Regarding JumiaPay, it is a long-term very important asset for us. Here, you don’t go lightly into processing third-party payments. This is a new area. The first step is to get the license, which is already a huge achievement. To obtain a license, you must develop several processes, apply to the central bank, and pass a number of audits and verifications. Successfully obtaining this speaks very highly of the product quality we have built, our level of compliance, and our level of execution with JumiaPay. Now that we have those licenses, we will tailor our solution for merchants and start the rollout phase. Thus, it might take several quarters before we show meaningful revenue as we need to adapt the product for the market.

Thank you. Our next question is coming from Sarah Simon with Berenberg.

I’ve got a couple of questions. The first one was on working capital. In the release, there was a comment about taking on more first-party inventories. I’m just wondering how we should think about working capital in that context going forward? Because I assume there you’ve got to pay for the goods before you start selling them. That was the first thing. The second one was on the repeat purchase rate? Can you give us an idea? Because I don’t think you’ve ever told us this. What proportion of your customers, let’s say, in the current quarter, the active customers, are people who have previously shopped on Jumia? Or maybe said the other way, which is what percentage of the customer growth came from completely new customers? That would be helpful. Then the final one was just in terms of the phasing of advertising. Obviously, your guidance for H1 implies quite a lot of increased spend in Q2. Can you remind us what sort of promotional weeks there are in Q2 versus Q1, if it’s to do with kind of advertising for events, or if there’s something else behind that phasing?

To start with the last one, because it’s kind of the easiest. We usually do the Jumia anniversary in June or sometimes in July, depending on several things, as you know, calendar dates around Ramadan and the rainy season in some countries. But this year, it will take place in June, and this year marks the 10-year anniversary of Jumia. This is typically a great opportunity for us to offer highly attractive prices, great deals, and a solid momentum for our sellers and consumers. So, in Q2, you will see increased investment compared to Q1 due to this specific anniversary. Regarding working capital, yes. We are increasing our first-party offerings because it meets the market demand and provides a good opportunity for us. We expect inventory levels to continue to increase. However, we are also getting improved payment terms, which balances out any significant cash impact. If inventory does increase, it would be compensated by increased payment terms, and we typically do retail on high-turning SKUs. We don’t usually buy items well in advance, such as fashion collections for next year. We buy FMCG for a few weeks or we buy electronics for big events like the 10-year anniversary or something similar. Therefore, we don’t expect to see a meaningful impact on working capital due to increased inventory since it will be counterbalanced by better payment terms and shorter selling cycles. On the cohort data, yes. We have published data points on loyalty and returning versus new consumers in the past. I can say qualitatively that we’re seeing positive momentum for both loyalty and customer adoption. At some point in the future, we may decide to publish more data, but for now, I cannot provide concrete numbers without risking giving misleading information. However, qualitatively, we are seeing positive trends in both adoption and loyalty.

Our next question is coming from Luke Holbrook with Morgan Stanley.

I was just going to ask you, from the unit economics perspective. On one hand, you’re making quite a few efforts to improve consumer frequency, but on the other hand, average order values have declined, I think 9% year-on-year in the first quarter. So just basically wondering how that impacts your roadmap to profitability, where you think that the average order value starts to stabilize? I’ve just got a follow-up after that. Thank you.

Yes. Thank you for the question, Luke. You’re correct that the average order value dropped by 9%. I think this is expected—and a trend that will likely continue. It’s difficult to predict exactly where the AOV will settle, but we should continue to see it decrease over time. The decline may not come at the same speed as before, but it’s hard to predict. Over the last few years, we’ve really managed to establish sustainable unit economics to drive profitability of orders. Our gross profit has moved from $3.4 to $4, and now stands at approximately $3.7. This is positive because despite the AOV decline from 33 to 27, we maintained the same dollar amount in gross profit. As a percentage of AOV, we’re now at almost 14% of gross profit. We’ve managed to grow our gross profit margin by 4 points despite the drop in AOV. The fulfillment expenses showed slight efficiency improvements. There are a lot of elements at play. However, we’re still generating $1 profit out of the $27 after fulfillment costs. Our business model has been very adaptive, managing to respond to the shifts towards everyday categories. Now, it’s about rolling out all the initiatives we discussed: driving more revenues, better margins on retail, better commissions and pass-throughs on the marketplace, increased advertising revenues, and logistics with JumiaPay. As we implement all those strategies, we expect to see an increase in gross profit dollars after fulfillment. So, we are not particularly concerned about the drop in AOV. In fact, we see it as a necessary adjustment, and we are positioned to enhance monetization and achieve sustainable growth.

As a follow-up, in the last couple of years, you’ve been impacted a little by supply chain issues, sourcing goods amid the current inflationary environment and the issues that have resulted globally. How does that impact you going forward? Will this result in kind of a buildup in inventories? And just as another side point as well, can you just comment on the local press reports on a possible bid to acquire the company? It would be helpful.

Yes, of course. Regarding supply chain impacts, I believe that many of the negative impacts during the COVID year were due to restrictions such as curfews, which prevented product movement and delivery. The disruptions we see now stem from logistics challenges—things not arriving or leaving manufacturing locations. This will continue, and many factors will impact our operations. Still, we are poised to manage this change, offering a strong assortment of everyday categories. Disruptions in specific categories will affect them, but consumers still need to purchase everyday products. Our positioning enables us to remain relevant regardless. I think we’ll emerge well because we maintain a focus on everyday product categories. As for the speculation regarding acquisition bids, we refrain from commenting on rumors. Under U.S. securities law, any shareholder owning more than 5% must disclose their status, so we expect that if any party reaches this threshold, they will make themselves known.

There appear to be no further questions in the queue. Do you have any closing comments you'd like to finish with?

I just want to thank everyone for the support and look forward to a great Q2 and a wonderful Jumia anniversary—10 years. We’ll reconnect in three months. In the meantime, we are always available for discussion. Thank you everyone. Take care.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.