Citron Research a US Based online investment Newsletter has declared E-commerce giant Jumia shares as worthless and that they had never “seen such an obvious fraud”. Jumia share price was down by over 18% as at closing of trading at the New York Stock Exchange.
The allegation: According to Citron, Jumia “fudged its numbers” ahead of filing documents for its listing in the US. Here are some of the allegations;
- Jumia’s largest shareholders MTN and Rocket Internet wanted to exit the company after it reported in 2018 that it had a year’s cash left.
- Jumia’s revenue declined from $145 million to $131 million while adjusted EBITDA loss went from $161 million to $150 million.
- It claimed Jumia had in 2018 presented an investment memorandum that had information that was grimmer than what is presented for its IPO in 2019. Thus alleging that some critical information that could have priced the stock lower was removed.
- Some of the material discrepancies it claimed Jumia reported include a rise in active consumer numbers from 2.1 million in October 2018 to 2.7 million by April 2-19. Suggesting that this could not have been true.
- It also claimed that active merchants moved from 43k to 53k between the same period as well.
- It further claimed that “the most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled. This was previously disclosed in the Company’s October 2018 confidential investor presentation.”
- Thus implying that most of its orders were cancelled in 2018.
- The report also accused Jumia of corporate fraud and related party infractions.
Who else was gored: The mention of MTN in this report is not appealing considering that the telecom giant is about listing on the Nigerian Stock Exchange. The research report suggests MTN offloaded Jumia stock because it knew the company was underperforming and not viable.
Perhaps the most significant casualty of this report was Jumia’s auditors Ernst and Young whom they claimed did not perform an audit on the company. According to SEC filings, Ernst & Young did not perform an audit of financial controls and provided no opinion on the financial controls of Jumia.
The implication for Nigerian startups – The scathing reports did not help local startup community as it characterized Nigeria as a corrupt country with people who are relatively poor and not suitable for e-commerce to thrive.
What’s in it for Citron – The newsletter is run by well know short-seller Andrew Left. Short-sellers profit from stocks when their share price tanks. Andrew might gain big from this report if he had shorted Jumia stock. The share price already crashed massively on Thursday. It is also possible that this report is a complete sham and a contraption to discredit Jumia. The market will have to determine.
Local rumours – Information reaching Nairametrics suggest Jumia’s businesses in Nigeria do not operate under the conditions one will expect. According to a competitor in the online travel space who wishes to remain anonymous, Jumia does not have an online IATA license but is somehow still being able to undercut prices. They also claim the company does not have CBN mobile money license yet it operates like one.
Upshots – The management of Jumia may want to respond vehemently against these allegations if it wants to stop its share price from falling. Nigerian regulators can also pick up this report and begin a probe against Jumia. This might have a wide-reaching implication on the e-commerce sector that is currently not being regulated.