What Jumia’s $50 million raise says about its path to profitability

Jumia, the African e-commerce giant, has raised an additional $50 million in equity funding as part of its push towards profitability. The capital injection, led by the International Finance Corporation (IFC), will help the company to tackle its high costs and lower its financing risk in a volatile macro environment.

Jumia's CEO, Francis Dufay, believes that a stronger balance sheet will de-risk the company's path to profitability. The company, which was burning about $200 million a year as of late 2022, has been aggressively cutting costs, exiting unprofitable verticals, and reducing its workforce in recent years.

The $50 million raise will enable Jumia to gradually increase its working capital, invest in fulfilment to lower unit costs, and drive platform usage. However, the capital alone will not make Jumia profitable. The company has been focusing on building a cheaper and more relevant supply, higher monetisation, lower fulfilment costs, and tighter fixed costs in recent years.

Jumia's focus has shifted towards serving the lower middle class of Africa, who make between $150 and $500 a month, rather than the ambitious fantasy middle class that does not exist. The company has been moving towards lower-priced, higher-volume merchandise, increasingly sourced from China, which provide cheaper products, a wider assortment, and faster product iteration.

Despite a fall in average physical-goods order value and an increase in gross profit per order, Jumia has managed to sell more goods within the cheaper basket without reducing its revenue per order. The deployment of more capital towards securing more supply like this ultimately benefits the company's bottom line.