Jumia Technologies AG’s co-Chief Executive Sacha Poignonnec reaffirmed the information in the African e-commerce company’s prospectus after Citron Research’s Andrew Left, a noted short seller, alleged in a report Thursday that it has the “smoking gun” that shows why Jumia equity is “worthless.”
“We completely stand by our prospectus,” he said on the earnings call for the e-commerce company’s first results as a public company. “We will not be distracted... by those who seek to create doubt to profit at our expense and that of our long-term stakeholders.”
Jumia JMIA, +0.69% moved up the date of its first-quarter results to Monday before the market opened without disclosing the reason for the change.
Jumia’s American depositary shares ended last week down nearly 30%. Shares are up 3.1% in Monday trading.
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In a post-earnings call conversation with MarketWatch, Poignonnec highlighted both the digital growth potential on the African continent and the first-quarter results. Losses widened year-over-year, though revenue grew 12% to EUR31.8 million, below the FactSet consensus of EUR34.7 million. Gross merchandise volume (GMV) was up 58%, a figure that Poignonnec says is important because it’s where the company generates its revenue. The company is heavily dependent on third-party sellers.
“We are engaged into a very well balanced strategy... that isn’t just about growth,” he said. “Ultimately we are addressing such a huge market. The reality is that we have huge potential ahead of us.”
Citron highlighted what it calls “material discrepancies” between the confidential investor presentation from October 2018 and what the company told the Securities and Exchange Commission.
The differences include: inflating active customer and active merchant numbers by 20% to 30%; and that 41% of orders were returned, not delivered or canceled.
“In 18 years of publishing, Citron has never seen such an obvious fraud as Jumia,” the report said.
Poignonnec said the report is “a collection of very selective and biased facts” designed to damage the company.
Among the risk factors highlighted in the IPO prospectus was the fact that many deliveries failed. Jumia said that 14.4% of GMV in 2018 either failed to deliver or was returned.
“Assuming 41% of orders were returned, not delivered, or canceled in 2018, this implies that almost 30% of orders were canceled in 2018,” Citron wrote. “Since Jumia primarily sells consumer electronics, which should not have this high of a cancellation rate, it wreaks of fraud.”
Research analysts initiated coverage of Jumia stock last week with bullish assessments of the company’s future. Many cited the growth potential for Jumia as the African continent currently has less than 1% e-commerce penetration.
Moreover, Jumia has created payments and logistical platforms designed to grow digital transactions across the continent, which is still very reliant on cash transactions.
“We believe this deep local knowledge and [these] payments and logistics systems provide Jumia with competitive advantages versus potential new market entrants,” said Raymond James, which rated Raymond James stock market perform.
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“When a company markets to investors ahead of its IPO and then a few months later omits material facts and makes material changes to its key financial metrics to make the business seem viable, this is securities fraud,” Citron said.
The report also references media from Nigeria, Jumia’s biggest market, accusing Jumia of fraudulent activity.
Jumia shares began trading on April 12, and had soared 160% as of early last week. Shares were priced at $14.50.
This report was originally published May 9, 2019.
