We Think Jumia Technologies (NYSE:JMIA) Needs To Drive Business Growth Carefully – Simply Wall St
Stock Analysis
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Jumia Technologies (NYSE:JMIA) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.
Check out the opportunities and risks within the US Online Retail industry.
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Jumia Technologies last reported its balance sheet in September 2022, it had zero debt and cash worth US$285m. Importantly, its cash burn was US$264m over the trailing twelve months. So it had a cash runway of approximately 13 months from September 2022. Importantly, analysts think that Jumia Technologies will reach cashflow breakeven in 3 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.
Jumia Technologies boosted investment sharply in the last year, with cash burn ramping by 83%. But the silver lining is that operating revenue increased by 30% in that time. In light of the data above, we're fairly sanguine about the business growth trajectory. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Jumia Technologies seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Since it has a market capitalisation of US$410m, Jumia Technologies' US$264m in cash burn equates to about 64% of its market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.
On this analysis of Jumia Technologies' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Taking an in-depth view of risks, we've identified 2 warning signs for Jumia Technologies that you should be aware of before investing.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
Find out whether Jumia Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Jumia Technologies AG operates an e-commerce platform in West Africa, North Africa, East and South Africa, Europe, the United Arab Emirates, and internationally.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
Excellent balance sheet and slightly overvalued.
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