Jumia Technologies faces difficulties due to declining revenues and growing debt

According to Kaylie Pferten, the struggling African e-commerce platform Jumia Technologies appears to be on the verge of going out

Africa appears to have a bright future. The population of the continent is among the youngest in the world, and its citizens are also getting better at using technology. A financial sector that is arguably more developed than in many developed nations uses smartphones.

Therefore, it is not surprising that the region's technology sector is receiving attention. But not every African tech company is a good investment. Jumia Technologies AG (NYSE: JMIA) is one example.

Jumia Technologies wants to become the largest e-commerce site in the area by offering a marketplace for transactions as well as payment and logistics services. This concept was somewhat successful at first. Several former workers of the management consulting firm McKinsey founded the business in Nigeria in 2012, and it swiftly spread to several other nations in the region.

Concurrently, it began to expand its business by establishing a number of other subsidiaries, such as a platform for food delivery, a hotel booking service, a lending company, and even a cryptocurrency division. Jumia was valued at over £1 billion at one point in time.

Competitors harm Jumia's chances.

Jumia's business plan seems reasonable on the surface. The issue is that it is up against more and more competition, particularly from Temu, a Chinese company that is using its founders' knowledge of the Asian e-commerce market.

Jumias' prospects have already been tarnished by rivals. It made the decision last year to cease operations in a number of nations, including the biggest economy in the region, South Africa. Even though Jumia is portraying this as a strategic reorganization to boost profitability rather than a retreat, the company has never turned a profit and has incurred significant losses. As long as tech companies can expand quickly enough to maintain the hope of eventually recovering shareholder losses, operating on the brink of profitability or even losing money isn't always an issue.

But even before Temu became an issue, Jumias's revenue growth was, at best, patchy. Sales are predicted to hardly surpass the level attained in 2019 this year, having peaked in 2022 with little chance of a full recovery in the near future.

Many investors appear to have given up on Jumia completely, which is understandable given the company's mounting debt, stalling revenues, and growing competition. In recent weeks, the share price has fallen by almost half, and it is currently 85% below its 52-week peak.

I recommend going short at the current price of £2.24 at 500 per £1 because prices are still declining and many brokers are thinking about stopping their coverage of the company. I suggest setting a stop-loss at £4.10, which gives you a total downside of 930, because the stock is somewhat more volatile than usual due to its small size.