How Germany’s Rocket Internet Built and Exited Jumia with Possible Loss

Strategic patience is important in life. Germany-based Rocket Internet was an original and prominent investor in Jumia, an ecommerce company with significant operations in Nigeria and other African economies. It was there when Jumia went public, opening at $14.50 per share and closed at $25.46. According to  Jumia filings, Rocket Internet controlled 20.6% of Jumia on the IPO day. There was a lockdown, a period where Jumia insiders are not allowed to sell the stocks, and the company could not have sold during the initial share positive acceleration. By the time that was over, Jumia which hit nearly $50 per share had dropped below $5.

But towards late Q4, I wrote that Jumia was “evolving” and wrote many articles praising its double play strategy with a fintech component: “I expect JumiaOne to become the most important component in the Jumia Group in coming years as it morphs pieces of Jumia brands to feed transactions into itself.  Yes, ecommerce can struggle but the fintech unit will win markets and territories – and profits”. During this evolutionary phase, Jumia stock was underperforming even as some people like me started seeing a glimmer of hope.

Unfortunately, for Rocket Internet, it did not see the signals and sold off its entire holdings before the inflection point. Yes, the firm sold its entire remaining 11% stake in the period between November 2019 and the onset of COVID-19, following an earlier dump,  when the stock was hovering near its lows. In other words, Rocket Internet missed the recent Jumia rally.

This is hard news: Germany’s Rocket Internet has exited Jumia. Within  the window it sold, from Nov 8 2019 to say early February 2020, Jumia’s highest stock value was about $8.50. That is still a huge drop when you consider that the stock rose to $49.77 shortly after IPO before it lost steam. Jumia closed at $2.58 today after losing more than 8% of its value. This sector remains a challenge in Africa, and not an electronic business, as the marginal cost is all physical. The sector challenges are well documented in this seminal Harvard Business Review piece I wrote a few years ago.

For me, the turning point for Jumia happened in September 2019; I wrote a piece where I included “amazing” for Jumia. The piece title was “Jumia Reveals Its Future With New Job Postings – And It is Amazing”. Here is the full piece.

“We remain focused on all aspects of our growth strategy, particularly JumiaPay, as we continue to drive its usage in our markets,” Jumia noted in its quarterly report with U.S. SEC.

That was a very powerful observation because no ecommerce company in emerging markets like India and China has done well without  building a great paytech company. China’s Alibaba has Alipay, India’s Flipkart has PhonePe. Jumia needs to make JumiaPay big.

Did you notice a pattern? The PhonePe is the double play for FlipKart. Yes, no matter what is happening in the ecommerce space, the payment arm will be doing just fine [commissions on transactions are assured]. Also, it turns out that successful ecommerce companies like Alibaba (with Alipay) in emerging markets have always have payment units.

To execute this and build a really great fintech business, Jumia has jobs for loan officers. Simply, Jumia wants to build a Lending Business and through that structure will deepen its JumiaPay. This fintech will bring unification of payments, lending and transaction processing at scale.

Our Junior loan officer will assist the development of Jumia Lending in Kenya by presenting our solution to our sellers. He/she will be helping our sellers to apply for a loan, and with the help of the loan officer will review the data collected and the applications. The Junior loan officer will be part of the JumiaPay team in Kenya and work side by side with the loan officer.

I expect JumiaPay to become the most important component in the Jumia Group in coming years as it morphs all these pieces to feed transactions into it. Possibly, it can spin it off to give huge payday to its investors. Yes, the ecommerce can struggle but the paytech will win markets and territories – and profits. That makes this super-focus on payment a great move.

And as that happens, a double play is born at scale in Jumia.

Finally, Rocket Internet, depending on the amount it contributed in funding Jumia, might have lost money on its voyage to Africa. It sold when the market cap of Jumia was below $400 million for a company which raised, pre-IPO, excess of $800 million. Simply, it gave up at the wrong time!

Jumia Group has raised a total of $823.7M in funding over 5 rounds. Their latest funding was raised on Apr 2, 2019 from a Corporate Round round.Jumia Group is registered under the ticker NYSE:JMIA. Their stock opened with $14.50 in its Apr 12, 2019 IPO.Jumia Group is funded by 10 investors. MasterCard and MTN Group are the most recent investors.

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My hypothesis has been that no one can run an ecomemrce business in any developing part of the world and make money. But you can do a double play where the ecommerce becomes a funnel into a “new business”. It is that new business that would create value for the Group. When Jumia came, it came with ecomemerce alone and certainly had no future. But around Sept last year, it added fintech (a double play to capture value from ecommerce), it became viable in my model. Today, even if the ecommerce does not make money, the fintech will make money, using transaction volume from ecommerce. That is what Alibaba/Alipay, Flipkart/PhonePe, etc do in China, India, etc. Ecommerce alone is not viable. But with a double play, it becomes!

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