Jumia Technologies has identified improper transactions at the Africa-focused online retailer’s Nigeria business that amounted to as much as 4% of first-quarter sales.
While the Berlin-based company says it’s taking measures to cut out instances of wrongdong, the findings backed up warnings made by short sellers Citron in a report three months ago, which brought an abrupt end to a share-price rally following Jumia’s initial public offering in New York the previous month.
Jumia found cases where “improper orders were placed and subsequently cancelled,” the company said in a statement on Wednesday. These included deals made through a team of independent Nigerian sales consultants called J-Force. The transactions in question amounted to 2% of 2018 gross merchandise volume — a term for sales used in online retailing — rising to 4% in the first quarter of 2019.
J-Force allows the company to interact directly with customers but “requires constant improvement,” Jumia co-founder and Chief Executive Officer Sacha Poignonnec said in a conference call.
The retailer — sometimes dubbed Africa’s Amazon — has operations in 14 countries and is seeking to take advantage of rising incomes and better technology on the continent.
In advertising for candidates to join J-Force, Jumia promises the opportunity to “earn unlimited income” while having “complete freedom and control over your activities.” Nigeria is ranked 144th on a list of 180 countries on the Corruption Perceptions Index, compiled by Transparency International.
The report of dubious sales practices comes after Citron called Jumia “an obvious fraud,” wiping out early gains from the IPO. The stock shed another 14% to $12.73 as of 12:39 p.m. in New York, dropping below the $14.50 listing price.
Jumia said second-quarter operating losses widened by 60% to 66.7 million euros ($74 million), mainly due to an increase in costs related to the vesting of share options following the IPO. The company’s target for profitability is late 2022, and the cash raised through the listing should take Jumia “close” to that, Poignonnec said.
The “business model has severe vulnerabilities,” Tellimer Markets Inc analysts led by Nirgunan Tiruchelvam said in a note following the results. “The business is intensely cashflow negative and we have concerns about its viability.”
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