As the Jumia stock price soars, beware of this crucial risk

By:
on May 9, 2024
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  • Jumia Technologies share price has soared by 178% from its lowest point in 2023.
  • There are signs that the company’s turnaround is having results.
  • However, the company still faces significant currency depreciation risks.

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Jumia Technologies (NYSE: JMIA) stock price has bounced back in the past few months as investors cheered the company’s turnaround. It has soared by over 178% from its lowest level in 2023 and is up by over 75% this year alone.

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Turnaround is going on but risks remain

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Jumia Technologies, commonly compared to Africa’s Amazon, is going through a turnaround after going through major challenges in the past few years. 

There are signs that this turnaround is going on well as evidenced by its first quarter results. The company’s revenue rose by 18.5% in Q1 to over $48.9 million. It also narrowed its operating loss from $28.4 million to $8.3 million in Q1.

This revenue growth happened even as the company reduced its marketing and advertising expenses from $5.3 million to $3.7 million. It also slashed its general and administrative expenses by 31% to $17.5 million.

Jumia’s management expects that its revenue growth will continue as it expects its core African countries to stabilise. For example, in Kenya, the currency has jumped by about 20% from its lowest point in January, making it one of the best performers globally. 

Still, some of its key countries are going through major challenges, which will affect its performance. In Egypt, the currency has depreciated from about 30 to 50 against the US dollar, a 50% crash. 

In Nigeria, the USD/NGN pair was trading at 1,420, up from the year-to-date low of 790. The same trend is happening in its other top markets like Ghana, Morocco, and Ivory Coast. This depreciation has impacted Jumia. While its Q1 revenue was $48.9 million, it was $64.8 million on a constant currency basis.

Weaker local currencies hurts Jumia in two main ways. First, it impacts importers who have to pay more money when buying products from countries like China and India. This is important since Jumia mostly sells imported products like smartphones, computer, and clothes.

Second, weaker local currencies lead to higher inflation, which affects the volume of products bought in its ecosystem. Jumia has offset some of these challenges by having most of its cash in US dollars

The other challenge is that Jumia is facing substantial competition from supermarket chains and individual sellers. Many small-scale traders in Africa are now focusing on selling their products in social media platforms like Instagram, Facebook, and TikTok.

Therefore, Jumia will likely remain under pressure for a while until local currencies in Africa improve. 

Jumia stock price forecast

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Jumia Technologies

JMIA chart by TradingView

Jumia’s shares bottomed at $2.23 in October last year as concerns about inflation and currency depreciation continued. It has now bounced back after demonstrating that its turnaround strategy was working.

As a result, the stock has soared above the 50-day and 200-day Exponential Moving Averages (EMA), signalling that bulls are in control. It has also jumped above the crucial support level at $4.90, its highest swing in July last year. 

The Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed upwards and are nearing their overbought levels. A closer look shows that the JMIA shares are slowly forming a double-top pattern at $8. 

Therefore, the stock will likely rise to $8 and then resume the bearish trend. In most cases, the double-top pattern signifies a top of an asset.

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