Category: lenS & thoughtS

Jumia And Africa E-commerce (4): Citron, Net Merchandize Value

About one month after Jumia’s IPO, the famous short research Citron published a short report.

Their first major short thesis is based on a Confidential Investor Presentation for investors in October 2018, which presents a discrepancy between Jumia’s IPO filing.

    • The active customers & merchants as of 2017 are 2.1 million and 43 thousand in the Confidential Investor Presentation while in the IPO filing are 2.7 million and 53 thousand.
      • no difference in 2018 numbers
      • they might used different definition for “active”
      • another possibility is consolidation calculation – if a user used multiple Jumia services (online shopping, travel, food, etc.), they could have been double counted. In the October 2018 presentation, they might deduct the duplicated accounts

Cirton also emphasized on omitting a metric in IPO – net merchandize value (NMV).  Since GMV doesn’t take into account returns/cancellations, which is ~41% of the GMV in 2017, this could be material in evaluating the business.

Another lever is failed delivery. Taking all these into account, GMV probably is not a very good indicator at this stage of Africa’s e-commerce. This also explains the hight fulfillment expenses. As the infrastructure in Africa improves over time, it could be better.

In Jumia’s IPO documents, it only mentions “in 2018, orders accounting for 14.4% of our GMV were either failed deliveries or returned by our consumers. ”

In the 2019 20-F, it says “we have also experienced a decrease in the rate of cancellations, failed deliveries and returns as a percentage of our GMV from approximately 35% in 2018 to 32% in 2019.”

So around 20.6% of Jumia’s 2018 GMV is cancelled.

Actually, in Jumia’s 2019 Q2 call with analysts, it says “it has identified instances where orders were placed and then subsequently canceled“.

However, when NMV provides an important information about Jumia’s operation, after all its revenue and expenses won’t change.

US Delivery System (7): Uber As Potential Disruptor

The Potential Disruptor: Uber

Uber, founded in 2009 and beta launched in San Francisco in 2010 on an AppShow, raised $8.1B in its IPO last year.

Uber is best-known as a ride-hailing company, the first of its kind in the new generation of gig-economy.

As the company grows, Uber has expanded into other areas, including UberEats.

Ride-hailing, in some way, is delivering people. UberEats, similarly, is delivering food.

Contrast to previous giants that create delivery systems with their own capital & employees, Uber is marching into this playground by facilitating the supply and demand, whether it’s people, food or other things.

During the current coronavirus pandemic, it has become more clear that moving people around is not the fundamental mandate of Uber; but matching the supply and demand is.

Consumers are increasingly using food delivery, grocery delivery and other tools to remain at home. No-contact delivery options have become popular.

Source: Techcrunch

In October 2019, Uber acquired the majority ownership of Cornershop, an online grocery provider in Chile, Mexico, and more recently in Peru and Toronto.

In March 19, 2020, on an investor update, Uber said

we’re actually now looking to test delivery, tested delivery and we have a Uber for health

Uber has transformed how people call a taxi; it may again transform the overall delivery system, starting from within cities.

US Delivery System (6): Amazon As Delivery Behemoth (Continu’d)

Amazon as a delivery behemoth (continu’d)

Growing capabilities in ocean, more vans & aircrafts

In 2016, Amazon registered itself with a federal agency overseeing ocean transportation, a step towards allowing it to serve as an intermediary for suppliers shipping merchandise in or out of the U.S.

Several month later, it was reported that Amazon had helped ship at least 150 containers of goods from China since October 2016, according to shipping documents collected at ports of entry that were compiled by Ocean Audit, a company specializing in ocean-freight refund recovery for shippers.

As of the beginning of 2018, Amazon’s freight shipping arm has shipped over 5,300 shipping containers from China to the United States. Amazon provides either simply the trans-Pacific portion of the trip or end-to-end service for companies that want it. That can include pick-up at the factory door in China,  shipment across the Pacific to a U.S. port, and trucking to Amazon fulfillment centers in the United States. Amazon Logistics and Beijing Joyo have published rates in their publicly accessible tariffs that describe the types of services and fees that their clients can utilize.

Amazon embarked in earnest on building its own last-mile network after UPS failed to bring orders to customers in time for Christmas in 2013, costing Amazon millions of dollars in refunds. [WSJ]

In 2018, Amazon ordered 20,000 Mercedes-Benz vans from Daimler. Since developing its own delivery network in 2018, Amazon .has built up a fleet of 30,000 last-mile delivery trucks and vans. As of Dec 2019 Bloomberg’s report, it has more than 800 delivery contractors in its last-mile network employing 75,000 U.S. drivers.

Amazon also has announced plans to order 100,000 battery-powered delivery vans from Rivian Automotive, an electric car-making venture it purchased a stake in earlier this year. The first of those battery-powered vans will hit the road in 2021.

Prime Air, the Amazon-branded planes, first debuted in Aug 2016. It first plane is a Boeing 767 owned by Atlas Air that had been converted into a freighter. Amazon announced deals with two aircraft leasing companies — Atlas, and another called Air Transport Services Group, or ATSG — in May 2016 to fly as many as 40 dedicated cargo planes over the next two years. [recode]

Atlas Air will be phasing in 20 Boeing 767-300s to carry Amazon’s freight, under the terms of a 10-year lease and a seven-year maintenance and operation contract. ATSG says its air services will eventually operate just as many planes for Amazon: 12 Boeing 767-200s that are covered by five-year leases, plus eight 767-300s with seven-year leases. [geekwire]

Amazon Prime Air plane
Source: recode

In May 2019, the main Air Hub at the Cincinnati/Northern Kentucky International Airport broke ground. Amazon will invest $1.5 billion. It can park 100 cargo jets and will open in 2021.

In 2019, after FedEx ended the services with Amazon, it announced a partnership with GE Capital Aviation Services (GECAS) to lease an additional 15 Boeing 737-800 cargo aircraft. These fifteen aircraft will be in addition to the five Boeing 737-800’s already leased from GECAS and announced earlier 2019.

“These new aircraft create additional capacity for Amazon Air, building on the investment in our Prime Free One-Day program,” said Dave Clark, Senior Vice President of Worldwide Operations at Amazon. “By 2021, Amazon Air will have a portfolio of 70 aircraft flying in our dedicated air network.”

US Delivery System (5): Amazon As Delivery Behemoth

Amazon as a delivery behemoth

50% of Amazon’s US packages

Amazon has been steadily growing its logistics operation over the last decade, and it now delivers more than half of all Amazon packages in the US.  “Our AlphaWise analysis shows that Amazon Logistics already delivers ~50% of Amazon US volumes, focused on urban areas,” Morgan Stanley said.

Share of Amazon Packages | Source: WSJ

Amazon needs to deliver about 5 billion packages per year. Amazon Logistics delivers about 20% of its U.S. package volumes from a year ago and is now shipping at a rate of 2.5 billion per year.

MS estimates UPS and FedEx have U.S. shipping volumes of 4.7 billion and 3 billion packages per year, respectively.

By 2022, Amazon Logistics will reach a volume of 6.5 billion packages per year , far exceeding its estimate for UPS at 5 billion packages per year and FedEx at 3.4 billion packages per year.

FedEx and UPS

In its 2018 annual report, published in Feb 2019, Amazon counted companies in “transportation and logistics services” among its rivals. “They had never done that before that day,” Mr. Smith (Founder, Chairman & CEO of FedEx) said. “So we took it seriously.”

In August 2019, FexEx said it decided not to renew the contract when it expires at the end of August, not delivering Amazon packages through its ground network. In June, FedEx said it was ending its air-shipping contract with Amazon in the U.S.

While FedEx is walking away from the largest e-commerce player in the U.S., FedEx is positioning itself as a go-to carrier for Target Corp., Walmart Inc. and the world of retailers that aim to compete with Amazon. [WSJ]

Meanwhile, UPS has been investing heavily to expand its capacity to handle more packages for Amazon and other shippers. UPS reported a surge in the volume of packages going through its air network in the June quarter. [WSJ]

Further, in the 2019 holiday season, Amazon blocked its third-party sellers from using FedEx’s ground delivery network for Prime shipments, citing a decline in performance heading into the final stretch of the holiday shopping season.

Shipping with Amazon

What is more concerning for other shipping & logistics companies is the new “Shipping with Amazon” program, reported by WSJ in Feb 2018.

Amazon expects to roll out the delivery service in Los Angeles in coming weeks with third-party merchants that sell goods via its website.

While the program is being piloted with the company’s third-party sellers, it is envisioned as eventually accommodating other businesses as well.

US Delivery System (3): Automobile & UPS

Industrialization: Automobile

While railway and steamship are useful in long distance delivery, short distance and city delivery system was still relying on manpower and horsepower. Things started to change in the 20th century.

In December 1899, an automobile mail wagon was tested in the US for the first time. Officials cheered the dramatic increase in collection speed and soon postmasters across the country were testing motorized vehicles. Collection times were cut at least in half in most trials. [PostalMuseum]

Driving was not an everyday skill in the early 20th century, so the Post Office asked manufacturers and suppliers to provide drivers along with the vehicles.

United Parcel Service (UPS)

In 1907, the predecessor of United Parcel Service (UPS), American Messenger Company, was founded. The company initially focused on merchant / retail businesses and then pivoted to “common carrier service” in 1922 with acquisition.

UPS bought its first car, a 1913 Model T Ford, and attached a truck bed to its back. By 1915, it was using four autos and five motorcycles, and employing 20 foot messengers.

Ford Model T UPS delivery vehicle in 1921 | Source: Wikipedia

In 1919, it started to use the current name UPS.

After WWII

During the Great Depression of the 1930s and America’s involvement in World War II from 1941–1945, new truck purchases were a low priority at the Post Office Department. As a result, trucks bought in the 1920s and early 1930s were kept on the road longer than expected.  [PostalMuseum]

Fueled by the boom of the auto industry, industrialization again revolutionized the delivery system and further expanded the ability of settlement in less connected lands across the US.

Post war, the family car played a central role in suburban life; the number of cars on the road increased from 25.8 million in 1945 to 61.7 million by 1960. America’s growing dependence on automobiles and the growth of the suburbs pushed the Post Office Department to change how it transported and delivered mail. Passenger trains — which had transported most mail since the 19th century — declined, as more and more people chose the open road over the railroad. [USPS]

The first Highway Post Office bus was inaugurated on February 10, 1941. A second route was not established until 1946 due to the outbreak of World War II.

Highway Post Office Bus | Source: postalmuseum

Highway Post Office routes were organized on round trips which averaged about 150 miles each way. There was a very good reason for this, as the bus generally could only hold enough gas for about one 150 mile trip, and fuel stops meant losing valuable time.

Three-wheeled vehicles like Mailster were tested in half a dozen cities beginning in June 1950. By the end of the decade, more than 5,700 Mailsters were in service; the number peaked in 1966, at about 17,700 nationwide.

Mailster, 1964 | Source: USPS

US Delivery System (2): Railway & Steamship

Industrialization: Railway & Steamship

Postal system has its political importance, which is why it’s included in the constitution. As the US expanded, how information / news / mails were transmitted were directly influencing the limit of a united society.

The Railway mail service began as early as November 1832. In 1835, railroads accounted for only one percent of mail transportation and connected only two major cities – Washington and Baltimore.

On July 7, 1838, Congress declared all railroads to be post roads and enabled the railways to make contracts as long as sending mail by rail cost no more than 25 percent above transporting it by stagecoach.

But it’s the industrialization that enabled the US to include / connect California and other lands that are far away from the initial states.

In 1848, US acquired California at the end of the Mexican War. Under the  Treaty of Guadalupe Hidalgo, Mexico also recognized the U.S. annexation of Texas, and agreed to sell California and the rest of its territory north of the Rio Grande for $15 million plus the assumption of certain damages claims.

In November 1848, Postmaster General Cave Johnson dispatched a special agent to California to establish Post Offices. By Christmas, steamships were carrying mail from New York to California via the Isthmus of Panama. This was before the construction of the canal. When the ships reached Panama, the mail was taken off and transported in canoes or on pack animals – and later by railroad – about 50 miles to the Pacific coast. Another steamship collected the mail on the Pacific side and headed north.

Map showing mail routes that steamships traveled along the Atlantic Coast, from New York south to Charleston, Savannah, Havana, New Orleans, and on to Panama. On the Pacific side, the mail route followed the coast from Panama north to Oregon, with stops in Mexico and California.
The first U.S. Mail traveled to California by steamship, via the Isthmus of Panama, in 1848 | Source: USPS

Congress authorized funding for the overland routes not because they brought any financial profit to the Post Office Department or the federal government, but because they helped build and bind together a nation.

Also briefly mentioned in 一朝风雨一代王：Sears, Walmart, Amazon, the expansion of the US rail transportation contributed to the growth of USPS (Post Office Department at the time).

Map railroads 1870
Source: gorhistory.com
Map railroads 1890
Source: gorhistory.com 

In 1862, mail was sorted en route, as a train moved between two points, using converted baggage cars.

On August 28, 1864, the first U.S. Railway Post Office (RPO) route was established officially.

By the early 1900s, railroads were critical to postal operations. Like Union Station in Washington, D.C., located adjacent to the City Post Office Building, the Post Office Department ordered that all new main post offices in large cities be built as near as possible to the principal railroad station.

Delivery System (1): Manpower, Horsepower & USPS

When the current coronavirus (COVID-19) hit the world and people prepare to stay at home for weeks, some of the social infrastructures are receiving increased attention.

The delivery system is a very good one to start. As uber not only provides uberEATS but also grocery delivery, Walmart / Target / CVS increasingly focus on delivery, etc., I will try to review the development of US delivery system recently and what is implied for the future.

Pre-industrialization: The Origin And Natural Power

The origin of United States Postal Service (USPS) can be dated back to 1775 when Benjamin Franklin was promoted as the first postmaster general.

In 1778, the US Constitution, Article I, Section Eight, known as the Postal Clause, says “The Congress shall have Power to establish Post Offices and post Roads”. This explains the importance of the postal system and its position as a government branch nowadays.

In 1792, the Postal Service Act was signed into law, which established the United States Post Office Department, the predecessor of the USPS.

In the early days, mails were mainly carried by manpower and horsepower. In 1785, the Continental Congress authorized the Postmaster General to award mail transportation contracts to stagecoach operators, in effect subsidizing public travel and commerce with postal funds. Despite their higher costs and sometimes lower efficiency, stagecoach proposals were preferred over horseback.

The Philadelphia Stage Coach (about 1800) | Source: https://peterpappas.com

 

to be continued…

Jumia And Africa E-commerce (3): JumiaPay

JumiaPay is a very natural business choice as we see the success of Alipay, spun out of Alibaba.

This is also the reason MasterCard expanded collaboration and invested €50 million last year.

In Jumia’s 19Q2 press release:

… expanded the scope of JumiaPay beyond our physical goods marketplace. As of December 31, 2018, JumiaPay was only available within our physical goods marketplace. It is now also available within our on-demand services, Jumia Food, and hotel booking portals, Jumia Travel, in selected countries.

…we continued to expand the range of financial and digital services available from third parties, powered by JumiaPay, offering our consumers an increasing range of relevant every day services.

In Nigeria for instance, consumers can now access micro-loans offered
by a local fintech startup, alongside event tickets offered by a local event ticketing provider.

In Egypt, in the second quarter of 2019, we started distributing services from a local deals provider allowing consumers to purchase their vouchers on the Jumia platform, using JumiaPay.

Not surprisingly, 2019 has been a good year for JumiaPay, with quarterly TPV ( Total Payment Volume) growing constantly and annual TPV of ~€124 million.

TPV as a percentage of Jumia’s GMV,  grew from 8.6% in 19Q1 to 15.1% in 19Q4. (update: GMV before adjustment)

Meanwhile, the value per transaction on JumiaPay is lower than its value per order on Jumia, which makes sense as JumiaPay is more user in every day purchases.

In 19Q4, €19 per transaction is roughly half of the Jumia order value (€36).

JumiaPay provides a hyper-growth opportunity.

In the Q4 press release, it says “the ramp-up of JumiaPay on-platform is attributable to our continuous education efforts of consumers, the expanding range of digital services offered as part of our JumiaPay app as well as a number of newly introduced marketing initiatives. These include Mastercard Tuesdays discounts, cash-backs funded by card issuing banks or the possibility to pay for purchases in 12-month installments at no interest, offered by partner banks. “

Jumia And Africa E-commerce (2): GMV And Consumers’ Online Spending

Below is the chart for Jumia’s performance in terms of GMV.

    • A spike in 2018Q4 just before IPO is controversial..
    • Although with the “artificial” growth in 18Q4, the trend looks good
    • The more worrying part is the slowdown in GMV growth – especially when Jumia is still has a long way to go

Jumia’s full year 2019 GMV is €1.1 billion, up 33% compared to 2018.

Comparatively, Pinduoduo’s GMV in the twelve-month period ended December 31, 2018 was RMB471.6 billion (US$268.6 billion), an increase of 234% from RMB141.2 billion in the twelve-month period ended December 31, 2017.

Combined with Jumia’s annual active customer base, we can see the GMV per AAC declining over time.

In its Q4 press release, Jumia says “we have reduced promotional intensity and consumer incentives on lower consumer lifetime value business. While most product categories experienced GMV growth in the 20 to 50% range, phones and consumer electronics contracted by approximately 20% on a year-over-year basis. This aspect of the business mix rebalancing will likely continue to negatively impact GMV development over the next two quarters.”

Source: Jumia 2019Q4 Presentation

“…we have increased our focus on everyday product categories such as Fast Moving Consumer Goods (“FMCG”), fashion, beauty and personal care as well as digital services which provide affordable entry points into the Jumia ecosystem…”

We could also see that Pinduoduo’s GMV per active buyer is a little bit insane..

approx. annual GMV per active buyer = $268.6 billion /  418.5 million = $641.8

Jumia is at ~€180 in 2019, using annual GMV divided by ending AAC.

To compare it with consumers’ e-commerce purchase across the globe..

    • World avg. $499
    • US $1,389
    • China $1,021
    • South Africa $109
    • Egypt $96
    • Ghana $59
    • Nigeria $44
    • Kenya $42
    • Morocco $41

Jumia And Africa E-commerce (1)

Pan-African e-commerce company Jumia listed on the New York Stock Exchange on April 2019, becoming the first startup from Africa to list on a major global exchange.

Jumia was offering 13,500,000 ADR shares with an IPO range of $13 to $16 per share and priced at $14.5 per share.

Mastercard Europe SA has agreed to purchase €50.0 million of shares in a concurrent private placement at the same price.

As of December 31, 2018, Mobile Telephone Networks Holdings (Pty) Ltd (“MTN”), Rocket Internet SE (“Rocket”) and Millicom International Cellular SA (“Millicom”) own respectively 31.28%, 21.74% and 10.15% of the Company.

Other shareholders are AEH New Africa eCommerce I GmbH (8.86%), AXA Africa Holding SAS (6.06%), Atlas Countries Support S.A. (6.06%), Chelsea Wharf Holdings S.à r.l. (5.51%), CDC Group (4.04%), Rocket Investment Funds (3.48%) and Goldman Sachs (2.83%).

Africa has one of the most digitally connected populations on the planet, with 400 million internet users.

Jumia said it has 4.0 million and 6.1 million annual active customers at the end of 2018 & 2019.

Comparatively, say China has three times the number of internet users (1.2bn), Jumia would have 12 million or 18.3 million respectively.

Pinduoduo, a relatively new e-commerce platform in China, said its Active buyers in the twelve-month period ended December 31, 2018 were 418.5 million, an increase of 71% from 244.8 million in the twelve-month period ended December 31, 2017.

We are talking about totally different stages of e-commerce. Low penetration means more education and infrastructure are needed while potential upside is large.