Jumia’s story isn’t new to most people. Since it launched in 2012, it has been the poster child for African e-commerce. Until recently, it had the same status for the entire tech space since it was the first unicorn and the first to IPO on the New York Stock Exchange (NYSE). In its early days, the company inspired hope that Africa was fertile ground for e-commerce to blossom. And that sparked a wave of e-commerce startups across the continent. But today, the cold reality is setting in that the business is tougher than it looks.

Over the last decade, Africa’s e-commerce market has grown exponentially. Data from Statista estimates that e-commerce revenue in Africa has risen from approximately $13 billion in 2017 to $37 billion in 2022. However, profit is still elusive to many startups on the scene. In December 2017, we reported a survey that said less than 30 per cent of e-commerce startups were profitable. Five years later, that narrative hasn’t changed.

In Nigeria, Jumia’s premier marketplace, two of the biggest e-commerce names—MallforAfrica and Payporte—have shut down due to operational issues. Konga, another e-commerce company trailing Jumia in Nigeria with a total of $79.5 million in VC funding, was eventually sold off at an undisclosed price—widely rumoured as a loss.

But it’s not only a local problem. E-commerce is a struggling business across the globe. For instance, in 2020, Nike’s digital sales soared an impressive 75%. However, its profit margins shrank to 37.3%, down from 45.5% the year before. How come they made more sales yet managed to lose money? Because making money in e-commerce is more complicated than it seems. But cases like this often get blurred out of the conversation because of the impressive numbers of household names like Amazon, AliExpress, and eBay.

Then when you bring the light beam back to Africa, it’s even more challenging. Jumia is the most-funded e-commerce company in Africa. But it also bears the heaviest cross. As of the third quarter of 2022, the company had accumulated losses of about $2 billion, owing to several factors. One of the loss triggers happened in 2019 when a report by a notorious short seller sent its stock price downhill. Jumia has changed its business model several times and even pivoted to other terrains like fintech, but its losses are still piling up. And for the first time, Jumia may have to worry about its liquidity position.

Heavily cash-strapped

Jumia wanted to be profitable by 2022. But that didn’t happen, although it cut its advertisement costs and introduced a logistics and advertising business.

Jumia described its current state as “profitable after fulfilment,” implying that it now makes money on every delivery. However, that profit doesn’t reflect in its balance, thanks to high operational costs.

So how has Jumia managed to stay in business despite bleeding away millions of dollars each quarter? The answer is liquidity. Jumia has always had wads of cash at its disposal enabling it to keep the business running. In 2016, Jumia became a unicorn by raising a record $493 million. When it got listed on the NYSE, it also raised $196 million.

But by 2020, the company’s cash balance stood at $178.4 million in its third-quarter report. That pushed the company to cash in $243.2 million from the stock market. However, the company recorded operating losses of $109.3 million in just nine months in 2022. 

Notably, the company has raised plenty of money from the public markets. That’s why it had over half a billion dollars on the balance sheet at the end of Q1 2022. But the company’s revenue was only $177.9 million at the end of the year, and it had lost another $226.9 million. The company now has only $104.3 million cash ⁠— the lowest since its IPO.

Popular, but not profitable

E-commerce is one of the leading businesses of the digital age. Data from Africa: The Big Deal shows that logistics and retail ranked third and fourth among the best-funded sectors in 2022. In Kenya, e-commerce and cleantech led the country to become the fastest-growing VC market.

So there’s no doubt that e-commerce is a big part of Africa’s digital future. But the uncomfortable truth is that the popular models are not profitable. In the same Kenya, e-commerce companies were among the most badly hit by the tech winter. Startups like Kune and WeFarm shut down, while big names like MarketForce, Twiga, and Sendy downsized.

There is still plenty of room for growth in e-commerce. But for now, the path to profit remains a mystery for most players.