Author Topic: JMIA - Jumia  (Read 7722 times)

cameronfen

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Re: JMIA - Jumia
« Reply #10 on: May 09, 2019, 12:22:21 PM »
I just got this:

https://citronresearch.com/not-all-ipos-are-created-equal-jumia-is-a-fraud/

Some serious allegations here ... no idea whether the report is right or not, but at least it is entertaining.

Just saw this too.  I guess since im the defacto defender of the company ill do defacto defending.  I havent seen the confidential report so i know less then citron on that. 

Things that trouble me:
 1.  30% of returns are cancelations by buyer.  Could be due to lack of logistics or could be inflating GMV.  Note though despite average customers being inflated, GMV is not between the two reports.   I have no really good understanding why 30% of returns are cancelled. 

2.   While it seems wierd why you would risk lawsuit for inflating number of buyers when investors are mainly looking at GMV for your size, inflating number of sellers seems like a fraudy thing to do that makes sense. 

3.  corruption.  Anybody who has lived in emerging markets knows that corruption is par for the course.  That being said if higher ups are using the company as a piggy bank, maybe I shouldnt invest.  Moves the prior. 

Things that dont bother me:

1.  Konga sale and amazon leaving Nigeria:  Konga exit was basically because it was recognized that Jumia was too dominant in Nigeria to take on.  I have to imagine the Amazon exit was the same (although I do not know). Left must know this, but is distorting facts to make it seem like its because Nigeria is a unattractive market.  To me this makes him look like he has an agenda (which to be fair he does because thats how citron works).   

2.  Inflating the number of buyers on Jumia.  If you were going to commit fraud why inflate the buyers number and keep GMV the same?  Everyone is looking at GMV, no one is using buyers as a metric for market power.  I think they could have used a different definition of buyers and sellers Monthly active vs yearly active or something.  That being said inflating those numbers so you can sell out is still sketch. Have to wait for company defense.   

3. Jforce fraud.  I suppose all 40% of sales could be fraud combined with the 30% cancellation rate.  However JForce is basically sales people with a wierd name.  They get paid a percentage of sales (3% I think).  Its not like these people are going to stuffing 100% of sales and collect 3% commision and when Jumia finds out they dont claw back comission.  Salespeople do stuff sales.  Its also 3rd world country, and there is a baseline level of corruption and I'm not surprised if it permates the salesforce.   Now a culture of inflating sales where management turns a blind eye is troubling if true.  But citron makes it seem like all 40% of sales is fraud when nothing suggests this is the case. 

3.  "The history of fraud at Jumia is well documented" slide also is a mischaracterization of the article it sources.  The article describes two higher up managers that took advantage of the company to steal money.  One left the country and is a fugitive.  Both were replaced.  Again emerging market people will do corrupt things.  Maybe hiring isnt so great.  Citron seems to imply that the company is working with these theives to defraud investors when both were replaced when it was discovered and one is a fugitive.  This was also an article from 4 to 5 years ago. 

4. Hodara: Saw this related party transaction in the proxy before investing.  Leaves a bad taste in the mouth, but could be relatively legit and not as bad as things that go on at a company like Ashford and that was/is a viable long. Reflects poorly on the ethics of the leaders, but from a dollars and cents thing doesnt move the needle.   Also the quote about sweeping things under the rug comes from the same article as point 3 and is not only a mischarterization of the article, but the quote was written at least 2 years before the related party transaction happened.  Like i said these corruption things moves the prior a bit but i had already seen at least this one. 


My guess is there is something there to the unethical management thing (it is a rocket internet comapany after all).  Its not an outright fraud as you can just go and buy stuff from Jumia if you live in Africa.  Left knows this and he may be on to something but my guess is he is in for the short term bump and covering as we speak.   Again note i have not seen the confidential investor report so i cant really argue with the validity of this.  My priors move a bit.  I will make the position smaller but im going to wait for this to blow over before selling. 
« Last Edit: May 09, 2019, 12:55:26 PM by cameronfen »


Pelagic

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Re: JMIA - Jumia
« Reply #11 on: May 10, 2019, 08:14:51 AM »
I think this might have potential. Please post on the thread when this crashes 50%+ or grows couple years and price is still the same. Not saying this will happen, but would be happy to look into it if it did. I guess I could buy tracking position, but probably will pass for now.

Guess you got your wish a bit sooner than expected.

Anyone else a little concerned about the ratio of consumers to suppliers? Jumia is roughly 50:1 (2.1M:43k) buyers to sellers which is quite high (2017#s). eBay is 6:1 (2015#s first that came up but I doubt it's changed materially). Usually a marketplace would have started to benefit from some of the flywheel effects at the scale Jumia is now where more sellers = more buyers, which in turn become sellers themselves. The ratio seems high to me and the number of sellers seems quite low at a cursory glance.

Maybe their goal is to curate sellers and provide a higher quality experience which explains the difference between eBay or maybe there are other roadblocks to selling I'm missing.

cameronfen

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Re: JMIA - Jumia
« Reply #12 on: May 10, 2019, 03:26:40 PM »
I think this might have potential. Please post on the thread when this crashes 50%+ or grows couple years and price is still the same. Not saying this will happen, but would be happy to look into it if it did. I guess I could buy tracking position, but probably will pass for now.

Guess you got your wish a bit sooner than expected.

Anyone else a little concerned about the ratio of consumers to suppliers? Jumia is roughly 50:1 (2.1M:43k) buyers to sellers which is quite high (2017#s). eBay is 6:1 (2015#s first that came up but I doubt it's changed materially). Usually a marketplace would have started to benefit from some of the flywheel effects at the scale Jumia is now where more sellers = more buyers, which in turn become sellers themselves. The ratio seems high to me and the number of sellers seems quite low at a cursory glance.

Maybe their goal is to curate sellers and provide a higher quality experience which explains the difference between eBay or maybe there are other roadblocks to selling I'm missing.

lol I was going to say the same thing about Jurgis' quote.  I think Jumia's model is more like amazon and alibaba, where the sellers arent mostly average joe's but actual distributors running businesses.  They say on their ads targeting sellers (which we can trust because its not an F-1 filing ;)) that 40% of sellers make (revenue I have to assume) more than 400,000 nigerian nira a month ($11k+).  Considering the purchasing power descrepency makes this number even larger. 

Pelagic

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Re: JMIA - Jumia
« Reply #13 on: May 10, 2019, 05:45:55 PM »
I think this might have potential. Please post on the thread when this crashes 50%+ or grows couple years and price is still the same. Not saying this will happen, but would be happy to look into it if it did. I guess I could buy tracking position, but probably will pass for now.

Guess you got your wish a bit sooner than expected.

Anyone else a little concerned about the ratio of consumers to suppliers? Jumia is roughly 50:1 (2.1M:43k) buyers to sellers which is quite high (2017#s). eBay is 6:1 (2015#s first that came up but I doubt it's changed materially). Usually a marketplace would have started to benefit from some of the flywheel effects at the scale Jumia is now where more sellers = more buyers, which in turn become sellers themselves. The ratio seems high to me and the number of sellers seems quite low at a cursory glance.

Maybe their goal is to curate sellers and provide a higher quality experience which explains the difference between eBay or maybe there are other roadblocks to selling I'm missing.

lol I was going to say the same thing about Jurgis' quote.  I think Jumia's model is more like amazon and alibaba, where the sellers arent mostly average joe's but actual distributors running businesses.  They say on their ads targeting sellers (which we can trust because its not an F-1 filing ;)) that 40% of sellers make (revenue I have to assume) more than 400,000 nigerian nira a month ($11k+).  Considering the purchasing power descrepency makes this number even larger.

When you click to "sell on Jumia" (https://www.jumia.com.ng/marketplace-vendor/) it says you're reaching 200 million+ customers and the F-1 only has us reaching 1/100th of them  :-\

Jurgis

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Re: JMIA - Jumia
« Reply #14 on: May 10, 2019, 06:47:08 PM »
Thanks for the shout out, but I guess I'll continue watching this. Citron's deck is pretty weak, but there might be enough questions to not invest.
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cameronfen

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Re: JMIA - Jumia
« Reply #15 on: May 10, 2019, 09:41:16 PM »
I think this might have potential. Please post on the thread when this crashes 50%+ or grows couple years and price is still the same. Not saying this will happen, but would be happy to look into it if it did. I guess I could buy tracking position, but probably will pass for now.

Guess you got your wish a bit sooner than expected.

Anyone else a little concerned about the ratio of consumers to suppliers? Jumia is roughly 50:1 (2.1M:43k) buyers to sellers which is quite high (2017#s). eBay is 6:1 (2015#s first that came up but I doubt it's changed materially). Usually a marketplace would have started to benefit from some of the flywheel effects at the scale Jumia is now where more sellers = more buyers, which in turn become sellers themselves. The ratio seems high to me and the number of sellers seems quite low at a cursory glance.

Maybe their goal is to curate sellers and provide a higher quality experience which explains the difference between eBay or maybe there are other roadblocks to selling I'm missing.

lol I was going to say the same thing about Jurgis' quote.  I think Jumia's model is more like amazon and alibaba, where the sellers arent mostly average joe's but actual distributors running businesses.  They say on their ads targeting sellers (which we can trust because its not an F-1 filing ;)) that 40% of sellers make (revenue I have to assume) more than 400,000 nigerian nira a month ($11k+).  Considering the purchasing power descrepency makes this number even larger.

When you click to "sell on Jumia" (https://www.jumia.com.ng/marketplace-vendor/) it says you're reaching 200 million+ customers and the F-1 only has us reaching 1/100th of them  :-\

My guess is what they are saying is 200 million nigerians or africans on jumia nigeria have access to the site.  Most don't buy or even visit it.  I think compared to brick and mortor where its just your town is the point they are trying to make.  I dont interpret it as much of a red flag other than exaggerating to attract people which seems to be a pattern with jmia. 

@Jurgis I think its even more reasonable you pass now then before assuming you had no way to access the report Left got his hands on. 

cameronfen

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Re: JMIA - Jumia
« Reply #16 on: May 13, 2019, 08:50:48 AM »
Listened to the conference call. Would like to hear from someone that suffers from less confirmation bias then me. Management only waited for Q&A to respond to any questiond on the short thesis.  They addressed JForce sales by saying they only pay comissions on gmv after returns and cancelations with penalties for more returns, but did not mention how much the fraud was even in qualitative terms (maybe for competitive reasons or slipped his mind idk why that happened).  Cancelations were addressed via african logistics issues and cash on delivery payments which I dont know if it is satisfactory.  The sellers and buyers issue was not mentioned but they continued to use the "inflated" numbers with a more detailed definition of what constitutes a seller or buyer (basically anyone how transacted before returns cancelations...).   

Even when they were pressed by an analyst to provide a more cordinated defense they basically said these attacks are baseless and they wont feed the shorts, but were happy to answer questions offline. To me management sounded like the didn't understand the dog eat dog world of the stock market today.  I understand that management wants to run a company and not engage in a prolonged pr campaign.
 But whether you are a fraud or not, nowadays you put together a point by point defense against a short thesis.  I sent them an email asking for clarification on the points they did not address and also pointing out basically how naive there approach is to the shorts is (whether they are inflating number or they aren't tbh).  I will let you know how they respond and will definitely at least trim my position if I dont hear back satisfacorily. 

SHDL

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Re: JMIA - Jumia
« Reply #17 on: May 13, 2019, 02:06:51 PM »
Just out of curiosity, I read the press release and listened to the call.  I was already quite negative about this, but now I am Ö amazed.

First, the quarterly numbers (in euros):

- revenue: 32m, up 12% YoY
- operating cash flow: -39m, vs -33m a year ago

So their revenue growth is decelerating in a big way and their cash burn is accelerating in the meantime. 

Yet the company insists it is doing great with its whopping 58% YoY growth in GMV ó never mind the accusations (to which they are not responding btw) that their GMV figures are massively inflated by returns, cancelations, failed deliveries, etc.

Market cap: $2bn, or ~13x TTM revenue.

I really donít think you need this to be a fraud for this to end badlyÖ
« Last Edit: May 13, 2019, 02:09:58 PM by SHDL »

cameronfen

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Re: JMIA - Jumia
« Reply #18 on: May 13, 2019, 02:52:53 PM »
^ They did not answer anything about the short thesis, I agree.  Maybe drinking the cool aid but I think they dont have much experience dealing with shorts and management just wants to run the company.  Even points that were obviously misstated they didnt bother to address which makes me feel they are more naive then hiding something.  But they didnt address many points I still have questions about. 

Regarding your company specific points: really you want to look at gross profit growth not revenue growth.  Third party sales revenue is booked as a transaction fee on the sale.  First party revenue is booked as the entire sale price of the item.  So its not an apples to apples comparison.  Furthermore, as the platform matures, obviously they will shift mix towards higher roi third party sales.  The first party sales are just done because they cant find sellers in an important niche.  These are not sales a company should be making when it matures. Gross margin grew by 80+% and GMV grew by 50+%.  Suggesting the actual underlying business is growing quickly.

SHDL

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Re: JMIA - Jumia
« Reply #19 on: May 13, 2019, 03:22:33 PM »
Regarding your company specific points: really you want to look at gross profit growth not revenue growth.  Third party sales revenue is booked as a transaction fee on the sale.  First party revenue is booked as the entire sale price of the item.  So its not an apples to apples comparison.  Furthermore, as the platform matures, obviously they will shift mix towards higher roi third party sales.  The first party sales are just done because they cant find sellers in an important niche.  These are not sales a company should be making when it matures. Gross margin grew by 80+% and GMV grew by 50+%.  Suggesting the actual underlying business is growing quickly.

Right, thatís what the management says we should focus on.

Personally, in situations like this I prefer to focus on numbers that are relatively difficult to fake, like revenue and cash flows.  Iíll take another closer look at this if/when things start to look better on those fronts.