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Does Jumia stock have long-term potential?

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African e-commerce giant Jumia Technologies (NYSE: JMIA) has been a hot stock to follow in the past year. The share price rocketed throughout the start of 2021, peaking at $65 in early February. However, the large-scale tech market sell-off, which I explained in a previous article, has driven share prices down drastically, even though it’s still up nearly six-fold in a year. Currently sitting at $29 per share, could Jumia stock be a good value buy?

What is Jumia Technologies?

Tagged the ‘Amazon of Africa’ Jumia is a Nigeria-based e-commerce company. With over 40m listed products, the firm sells to an enormous African market of over 1.2bn consumers. The firm’s business model consists of four parts: JumiaPay, Jumia Marketplace, Jumia Travel, and Jumia Food. Having such an extensive portfolio of products is one of the things I like about it.

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The African e-commerce market has seen an explosion in growth during the last five years as more and more countries are expanding internet capabilities. Analysts have projected e-commerce could be worth $75bn in leading African economies by 2025. Jumia seems to be harnessing this momentum, reporting a 50% rise in transactions during the first six months of 2020. Its stock price is likely to directly benefit from the increasing e-commerce presence in Africa. 

Still no profit

One problem that has haunted Jumia since its 2019 IPO is its losses. In its 2021 Q1 results, the firm announced operating losses of $41m. These are largely reflective of its ongoing infrastructure building to keep up with a growing consumer base. This gives the firm a temporary excuse for excessive losses. However, as a nine-year-old company, I would hope this investment would lead to some profits in the next few years.

In addition to this, there are still problems with the lack of internet infrastructure in much of sub-Saharan Africa. The International Telecommunication Union estimates that just 28.2% of individuals use the internet there. This could severely curtail Jumia’s capabilities as well as its stock price.

Future prospects for Jumia Stock

Alphabet‘s Google is one big-hitter that’s looking to capitalise on Africa’s extensive population growth. Through its Loon and Taara projects, the business is developing super-fast internet speeds through invisible light beams transmitted at high altitudes. Google has picked Africa as a target for this project and operations are already kicking off in Kenya. Facebook has announced a similar project to connect 23 countries in Africa and the Middle East to Europe via a 37,000km long undersea cable.

Projects like these will massively increase Jumia’s reach, and will no doubt add millions of new customers to the internet-based business plan.

Jumia: a buy now?

I like the current price of Jumia stock. Though it has taken a drastic tumble from its February highs, I believe this marks a good value buy opportunity. While there are certainly some short-term profitability hurdles that need to be overcome, I own Jumia shares as I believe it’s in a position to capitalise on the rapidly growing African market.

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Dylan Hood owns shares of Jumia Technologies. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Facebook and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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