Earnings Call Transcript - JMIA Q3 2021

Sacha Poignonnec, CEO

To accelerate the development of products and features for an even more engaging and seamless user experience, as well as, of course, the development of JumiaPay. We are comfortable with the increased level of loss given the strength of first unit economics that will come in a minute. The good signs of growth that we have just seen. And of course, our cash position of $584 million at the end of the quarter. Now, let's review on Page 6, the unit economics, which are obviously a key enabler for these growth investments. On this page, you can see that the average order value now stands at $28. As we continue to shift our mix towards more of the everyday product categories. And overall, our gross profit after fulfillment expenses, excluding consumer incentives, which are given from revenues, stands at $1.3 per order, which represents 4.6% of the value of each order. Two years ago, same numbers were $0.5 and 1.2%. Given the strength of the unit economics, we are investing more into scaling the platform and this includes targeted investments in consumer adoption. We can see on this chart that we have increased consumer incentives to $0.9 per order, a level similar to the ones that we had two years ago. Our sales and advertising for order are now standing at $2.8. We believe that we have very strong unit economics, and this will continue to allow us to invest in scaling the platform. With this, let me now hand over to Jeremy, who will give us more details.

Jeremy Hodara, Co-CEO

Thank you, Sacha. Hello, everyone, and thanks for joining today. Let’s keep up with the review of the user strength during the quarter on page 8. So, on page 8, our growth access and strength strategy are actually starting to pay off. Year-over-year growth reached an all-time high of 8.5 million surpassing the prior two, four weeks and increasing by 28% year-over-year, which is the fastest growth rate of the past seven quarters. The annual active consumers reached 7.3 million, which is up 8% year-over-year, supported by a strong acceleration in user consumer adds during the quarter. We're also seeing a sequential step-up in active consumers at 4% quarter-over-quarter, which is the fastest sequential growth of the past five quarters. As a result of the acceleration in consumer and orders growth, we're reaching an inflection point in the GMV trajectory, which increased by 8% year-over-year, reaching $238 million. This is placing momentum, and we believe we can maintain this momentum as we continue to focus on every category and invest in growth. On page 9, you can see that we continue to shift the mix towards three different categories, which went from 44% of the GMV in 2019 to 64% in Q3 this year. The average order value now stands at $28. If we look now on page 10 at the trends by product category with more details. We see that the GMV growth momentum across all categories with the only exception of Phone and Electronics, which continue to be affected by supply chain disruption. In Q3, the fastest-growing category in GMV terms was general merchandise, which almost doubled year-over-year. FMCG was the second fastest-growing category in GMV terms. It was also the fastest-growing category in terms of items sold, contributing higher volume numbers and almost doubling year-over-year. We see great momentum in the grocery sub-category, which we are constantly improving to meet the needs of consumers. Food delivery is maintaining strong momentum and was the second fastest-growing category in terms of items sold, growing by almost 40% year-over-year. For delivery, we posted our highest ever quarterly revenue with over 2 million orders. We're pleased to see broad-based momentum across everyday categories. We are confident that our continued investments and disciplined growth will further fuel this acceleration. We're moving now to JumiaPay on Page 12. JumiaPay increased by 15%, from $63 million in Q3 last year to $64.5 million in Q3 this year, supported by the growth in GMV and JumiaPay app digital services, in particular. On-platform penetration of JumiaPay, as a percentage of the GMV, reached a new high of 27.1% in Q3 this year from 25.4% in Q3 last year. If we turn to transactions on page 13, JumiaPay transactions reached 3 million in Q3 this year, reflecting a 34% year-over-year increase, the fastest transaction growth rate in the past quarters. JumiaPay transaction growth was supported by accelerating volume growth across the business, especially in the food delivery category. Overall, 25.7% of orders placed on the Jumia platform in Q3 this year were completed using JumiaPay compared to 34.1% last year. In parallel with increasing the benefits of JumiaPay on our platform, we're also implementing initiatives to broaden the use of JumiaPay off the platform. There's one initiative in Egypt earlier this month, where we are starting to process our first payments off-platform for third-party online merchants. I'd like to take this opportunity to explain our strategy on JumiaPay in more detail. As explained in the past, our strategy with JumiaPay is to create a robust ecosystem for consumers and merchants. The first and essential layer of this ecosystem is payments. For consumers, we have introduced a JumiaPay checkout account that can be linked to various payment methods, such as a credit card, bank account, or wallet. There's a huge variety of payment methods in Africa, and we're pleased that our JumiaPay checkout account accommodates this diversity. In the future, we intend to develop JumiaPay checkout accounts into a full-fledged wallet with an extended range of features, including cash-in and cash-out options for big transactions. For merchants, we have a JumiaPay branded checkout solution that can leverage the existing base of JumiaPay account holders. This solution is currently being rolled out to third-party sellers as part of our ongoing initiatives.

Safae Damir, CFO

Thanks Jeremy. I will start with our monetization metrics. Let's look at the trends of our market-based revenue on page 15. Marketing and advertising revenue increased by 14% supported by robust take-up of our ad solutions. We have doubled the number of monthly active ad campaigns in Q3 '21 compared to the monthly average of the first half of the year. This was partly offset by generally tighter budgets from advertisers and agencies, in particular. Value-added services revenue increased by 11% year-over-year. This was a result of increased volumes in our platform, and hence, higher shipping contributions collected from sellers, as well as increased uptake of our warehousing services by sellers. Commissions and fulfillment revenues are both impacted by consumer incentives. Excluding these impacts, commissions revenue was up 18% driven by usage growth, while fulfillment revenue was down 2% as we chose to reduce the shipping fees to customers. One of the key features of our revenue model is the diversity of our monetization streams, which gives us the flexibility to adjust our monetization strategy to serve our objectives. Parts of the monetization strategy also aim to drive revenue and margin from our platform assets, Jumia Logistics and JumiaPay. I now would like to give you an update on Jumia Logistics on Page 17. We are seeing strong momentum in this business and reached a new milestone in Q3 '21, with revenue generated from these activities reaching the million-dollar mark. This was driven by a record volume of 2.9 million packages shipped, more than doubling quarter-on-quarter on behalf of over 700 clients. Our clients span a broad range of sectors, and we have highlighted a few examples of logistics as a service clients we worked with during the quarter. In Kenya, we collaborated with Galana Oil, a leading oil marketing company, to expand their logistics capacity and serve their sales outlets and third-party clients across the country. In Ivory Coast, we worked with Platinum, the sole distributor for KDog's, to serve wholesale and modern trade clients across the country. In Tunisia, we worked with a leading distributor to serve their retailers across the greater Suneet area. We are very pleased with this momentum and milestone. We believe we have created a unique logistics platform relevant to large and small companies across many sectors.

Sacha Poignonnec, CEO

Thank you, Safae. Thank you very much, Jeremy. I think you can see from the remarks, the beginning of our scaling efforts. By scaling the platform, we mean again, accelerating user engagement, developing JumiaPay, and diversifying monetization channels to drive growth. We are leveraging, of course, the strong fundamentals and unit economics, along with the efficiency gains we have achieved over the past two years. I think in terms of our results, we witnessed record GMV growth of 28% year-over-year. We saw record active consumers, and we are pleased with the GMV growth. On developing JumiaPay, we see good growth, with 16% volume increase, and we've also initiated the first off-platform transactions in Egypt. In terms of diversifying monetization, we see meaningful efforts as our logistics operations are starting to yield positive results, reaching the million-dollar mark. We believe the strategy is solid, and we have deployed more capital during the quarter, fostering positive signs of growth in JumiaPay and diversifying revenues. We recognize the vast, untapped markets that encourage both e-commerce growth and payment penetration.

Safae Damir, CFO

We want to further develop JumiaPay into a payment and fintech leader on the continent within the next couple of quarters. Building upon this momentum, we intend to accelerate growth in user engagement, consumer orders, and GMV. To fuel this growth, we will continue stepping up our consumer adoption and technology investments. In the near term, we may see fluctuations in unit economics as we ramp up investments, but we believe that focusing on usage growth and diversification of monetization streams will support this. We are very confident that achieving scale through this growth acceleration of JumiaPay and diversifying monetization will ultimately stabilize our business.

Sacha Poignonnec, CEO

This disciplined approach to cost and capital allocation will help us reach breakeven. Thank you very much for your attention, and we are now ready to take your questions.

Operator, Operator

Certainly. The floor is now open for questions. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold a moment while we poll for questions. Your first question is coming from Aaron Kessler with Raymond James, please pose your question.

Aaron Kessler, Analyst

Thanks, guys. A couple of questions. First on the increased level of marketing, can you talk a little bit about the quality of the customers you are getting? I am concerned that some of the incentives may lead to more short-lived customers. How long do you plan on maintaining this increased level of marketing spend, and do you expect to analyze some of the data after this, or do you think this will sustain for several quarters until you can achieve profitability?

Sacha Poignonnec, CEO

In regards to marketing strategy, we are definitely investing across the full spectrum of the consumer journey. We're investing at the very top of the funnel for brand awareness and education, into consideration, conversion, and loyalty. We recognize that we have many consumers who are yet to fully embrace online shopping. We are very strategic in our approach to consumer incentives, which are part of driving the consumer lifetime value. While we acknowledge there are deal seekers among customers, our goal is to cultivate loyal customers over time. With regards to marketing expenses, our intention is to continue increasing our marketing investments while optimizing for efficiency. We aim to increase both the absolute dollars invested and the efficiency of those investments.

Aaron Kessler, Analyst

For the incentives, could you clarify where you're recognizing those? Are they accounted for under contra revenues, sales, or marketing?

Sacha Poignonnec, CEO

Yes, they are accounted for as a reduction in revenues, primarily impacting the commission and shipping categories. This is why we include both before and after consumer incentives in our presentation to allow for comparisons across the quarters.

Lamont Williams, Analyst

Hi, thanks for taking my question. You talked a bit in the letter about doing more first-party in the grocery category. Is this more just to increase the variety in the category? How are you thinking long-term within this context?

Sacha Poignonnec, CEO

It's a good question. We're focusing on groceries because of the challenges big brands face in operating a marketplace business that they're not accustomed to. Most large FMCG players in our markets do not operate direct-to-consumer businesses. They typically sell to distributors who then sell to consumers. Recognizing this and leveraging our established skills, we have opted to manage a significant portion of the grocery categories as a first-party business.

Lamont Williams, Analyst

And regarding the upcoming holidays, could you discuss how you're evaluating promotional strategies and any trends post-quarter?

Sacha Poignonnec, CEO

On promotions and incentives, we're strategically using them to drive consumers towards specific product categories and payment methods. Our intention is to enhance growth and adoption while maintaining momentum. We're pleased with the recent acceleration and aim to sustain this growth in Q4 and beyond.

Joshua Korn, Analyst

Hi, thank you so much, and congrats on the acceleration to growth. My question is two-fold: First, how did the end of the quarter trend relative to the beginning?

Sacha Poignonnec, CEO

Our focus remains on scaling the platform by accelerating user engagement, developing JumiaPay, and diversifying monetization. We are engaged in a growth phase, and we do not intend to pause our momentum.

Joshua Korn, Analyst

Are you witnessing acceleration in growth as you exit Q3 and move into Q4?

Sacha Poignonnec, CEO

This is not something we will disclose as there can be variations month-on-month. However, we are confident in our projected acceleration.

Sarah Simon, Analyst

Could you remind us what qualifies as part of digital orders? And how should we consider the shift to grocery 1P in relation to your costs?

Sacha Poignonnec, CEO

Digital orders include all transactions processed on the JumiaPay app. We have reduced our reliance on micro-transactions as we have expanded our service offerings significantly, allowing us to focus on more valuable transactions. As for grocery 1P, we are not anticipating significant new upfront costs since we have existing capabilities and infrastructure. Thank you very much for attending, and we are always available for further discussions. I hope everyone remains safe. Take care.

Operator, Operator

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