May 23, 2023

Jumia stock price: Africa’s Amazon faces a major forex risk

Jumia (NYSE: JMIA) stock price darted higher ahead of the latest financial results. The shares rose to a high of $3.15, much higher than the year-to-date low of $2.54. In all, Jumia shares have plunged by over 95% from the highest level in 2021.

Jumia has a major forex risk

Jumia Technologies is an e-commerce company that focuses on the African market. The company, often seen as Africa’s version of Amazon, operates in several African countries like Nigeria, Kenya, Senegal, and Algeria among others.

Analysts believe that Jumia’s revenue in the first quarter came in at $50 million, down from the previous quarter’s $66 million. This decline is expected since the company makes most of its money in the fourth quarter.

The biggest risk that Jumia is facing is foreign exchange. As I wrote in this article, many African currencies are crashing. The Kenyan shilling has crashed from a pandemic low of 100 to almost 140 and is sitting at an all-time low.

Meanwhile, West African franc has fallen from 589 in April to 606 while the Nigerian naira has plunged to a record low and analysts expect it to devalue more. The Ghanaian cedi has crashed from 4.73 in 2018 to over 10. In all, most currencies in countries where it operates have lost most of their value.

Falling forex rates have an impact on Jumia. For one, Jumia publishes its results in US dollars. As such, a strong US dollar has a negative impact on its results. 

The other impact is that a stronger dollar impacts imports from China since most of Jumia’s merchandise come from the country. For example, a smartphone that was selling for KES 100,000 a few years ago is now going for over KES 140,000. Finally, weaker African currencies are leading to higher inflation and weak spending.

Jumia stock price forecast

JMIA chart by TradingView

The daily chart shows that Jumia share price has been in a strong downward trend in the past few months as concerns about the company continued. Despite the recent jump, the shares remain below the 100-day and 50-day exponential moving averages. 

Jumia shares have moved slightly above the key resistance point at $2.88, the lowest level on December 28. Therefore, I suspect that the shares will continue falling as sellers target the year-to-date low of $2.5. A move below that level will see it move to $2.0.

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