Continuing on the last post, I said although some earnings number are not pretty, Jumia has become a different firm in two year.
It was relying heavily on first-party sales (“resell” model like JD.com) which accounted for over 70% of its revenue in 2018Q1. That number decreased overtime to 34% in 2020Q1 (halved), partially due to the coronavirus disruption from Jumia’s own suppliers.
Another way to look at this is on the GMV level. 1st party revenue as % of GMV decreases overtime as well – what is more, the take-rate on the rest of the GMV, where marketplace revenues come from, is improving.
I do believe marketplace revenues (like Alibaba) are more valuable. Thus, Jumia’s has grown its higher-quality revenue overtime. The third-party business has shaped Jumia into a different company (with more valuable revenues).
As JumiaPay keeps growing, it will deliver value just like Alipay.
Another important matrix that is improving significantly is gross profit after fulfillment expense. This value could be used as “gross profit” or even “revenue” to better track the long-term profitability.
Fulfillment expense is not trivial and grows with the GMV as both 1st-party and 3rd-party sales uses Jumia’s delivery network.
And as mentioned in the previous post, African nations are now more willing to use mobile payments due to coronavirus. The improvement in adoption will give Jumia a boost in monetization overtime.
To sum up, three reasons that I believe Jumia is a different company:
higher-quality marketplace revenues are now driving the growth
gross profitability after fulfillment improves meaningfully
pandemic-shaped population will adopt mobile payments & fintech solutions much more easily – trust is forced to build.
Having grown into the No.1 operator in Permian in 2018Q4, Occidental definitely don’t want give that title back to Chevron.
While acquiring Anadarko is an add-on for Chevron, it’s much more financially challenging for Occidental.
Source: Chevron
Occidental produces at a similar scale as Anadarko. So it’s presumably an acquisition that would double its size.
But Occidental moved decisively. It offered $76.00 per share for Anadarko on April 24, 12 days after Chevron’s announcement, with ~17% premium over the $65 per share agreement. Taking into account the stock price movement, Occidental’s deal presents a ~20% premium.
Occidental’s offer also has more cash component (50/50) – $38.00 in cash and 0.6094 shares of Occidental common stock per Anadarko share, valuing Anadarko at $57 billion.
Occidental actually tried to acquire Anadarko earlier in April, according to the press release later on.
It is unfortunate that Anadarko agreed to pay a break up fee of $1 billion, representing approximately $2 per share, without even picking up the phone to speak to us after we made two proposals during the week of April 8 that were at a significantly higher value to the transaction you were apparently negotiating with Chevron.
We noted to you on April 8 that our due diligence is complete. As you are aware, our financial advisors are BofA Merrill Lynch and Citi, and our legal advisors are Cravath, Swaine & Moore LLP, and we and they are available to discuss any aspect of our proposal. We and our advisors have reviewed your merger agreement with Chevron. We are separately sending to you and your legal advisors a form of merger agreement on that basis which we would be prepared to enter into, subject to our agreeing to the disclosure schedules to be attached, together with a copy of our financing commitment letter.
Financing The Acquisition
Acquisition of this size is difficult for Occidental, especially as it offers much more cash than stocks.
In 2018, Occidental generated $7,669 million operating cash flows with $(4,975) million CapEx. It also paid $(2,374) million in cash dividend and bought back $(1,248) million stocks.
On its balance sheet as of the end of 2018, it had $3,033 million cash, and $10,317 million long-term debt.
Berkshire Hathaway, Inc. has committed to invest a total of $10 billion in Occidental. The investment is contingent upon Occidental entering into and completing its proposed acquisition of Anadarko. Berkshire Hathaway will receive 100,000 shares of Cumulative Perpetual Preferred Stock with a liquidation value of $100,000 per share, together with a warrant to purchase up to 80.0 million shares of Occidental common stock at an exercise price of $62.50 per share.
The preferred shares also have a dividend rate of 8% per year.
As WSJ describes, the investment “is straight out of Warren Buffett’s playbook“. During and after the financial crisis, Berkshire acted as a lender of last resort for blue-chip companies including Goldman Sachs, General Electric and Bank of America.
Occidental marks Berkshire’s largest purchase of preferred shares; the 2013 Heinz deal has $8 billion preferred stocks and other securities.
Berkshire’s Preferreds | Source: WSJ
Mr. Buffett and Occidental have some shared history.
Mr. Buffett’s first stock purchase was three shares of Cities Service preferred stock when he was 11 years old. Occidental’s chief executive, Vicki Hollub, started her career at Cities Service, which was later acquired by Occidental. Cities Service is now called CITGO Petroleum Corp. and owned by Venezuela’s Petróleos de Venezuela SA.
Occidental Petroleum (OXY) has been one of the most watched stock since 2019. Its stock lost ~80% compared with the start of 2018 and lagged behind Chevron and the industry later on.
OXY vs. XLE & CVX Jan 2018 – Apr 2020 | Source: Yahoo Finance, author
[XLE is State Street’s Energy Select Sector ETF fund; see its top holdings here]
Permian Oil Production
The Permian, the biggest shale basin in the US, has been one of the biggest drivers of a shale oil boom that helped make US the biggest oil producer in the world, ahead of Saudi Arabia and Russia.
Source: EIA
According to the March 2020 productivity report, output from the Permian basin of Texas and New Mexico, is expected to rise 38,000 bpd to a record 4.79 million barrels per day (bpd) in April 2020.
Texas continues to produce more crude oil than any other state or region of the United States, accounting for 41% of the US total in 2019.
Source: EIASource: EIA
As mentioned in Occidental’s 2019 annual report, Permian accounts for more than 30% of the total United States oil production; Occidental has a leading position in the Permian Basin, producing approximately 10% of the total oil in the basin.
Chevron Bids For Anadarko Petroleum (APC)
As the competition in Permian intensifies, with Occidental and Chevron two leading operators, companies are looking for M&A opportunities.
Chevron was the No.1 in 2018 whole year production in Permian, but lost that seat to Occidental in 2018Q4 as shown above. Growth by acquisition seems to be the way to go for Chevron.
Source: WSJ
The total enterprise value of the transaction is $50 billion. Anadarko’s equity is valued at $33 billion, or $65 per share. Based on Chevron’s closing price on April 11th, 2019 and under the terms of the agreement, Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. (75% stock and 25% cash)
In Jumia’s 2019 20-F, filed on April 03, it mentions that
The logistics landscape in Africa is characterized by a high degree of fragmentation, often with no clear leading player in a particular country or region, a high degree of variability between regions and players, a general lack of automation of logistic centers and an overall challenging infrastructure. While some of Africa’s major cities are reasonably well-served by third-party logistics vendors, such vendors often do not operate with the standards required to ensure a good seller and consumer experience in the context of e-commerce. In addition, many Africans live in settings which lack clear addresses and are often far from the nearest warehouse or distribution center. As a result, logistics and delivery services are not readily available in such areas or may be prohibitively expensive. Furthermore, many local logistics companies operate without the technology required to provide consumers with high quality service (e.g., tracking of their order, timely delivery).
As of December 31, 2019, Jumia Logistics platform consisted of almost 200 logistics partners, a proprietary delivery fleet to fulfill express deliveries in select areas, more than 40 thousand sqm of warehousing space, more than 70 drop-off stations for sellers and almost 600 pick-up stations for consumers. All of the warehouse space is leased from third parties.
Jumia also rolled out Jumia Prime for unlimited free deliveries in certain markets. For exmaple, it’s around $60/yr in Nigiria, ~$64/yr in Nairobi in Kenya.
Source: jumia.com.ng
Another difficulty is the trust in cash (or maybe the unavailability of banking).
The ability for consumers to pay cash on delivery is an important feature of our platform, in particular for new consumers who are transacting online for the first time. In case of cash on delivery, the consumer needs to be present at the time of the delivery to pay for the order. While we are constantly improving our operations to make delivery schedules more convenient and predictable, some consumers are not present at the time of the delivery attempt, which means that cash on delivery results in a significantly higher portion of returns than other delivery options. These returns are driving higher fulfillment costs, higher costs of operations for our sellers and lower monetization for us as we are not able to collect commissions for such returns. In comparison, orders that are “pre-paid” electronically tend to drive much lower returns than cash on delivery, driving better monetization for us and, ultimately, lower fulfillment costs and less operational complexities.
About one month after Jumia’s IPO, the famous short research Citron published a short report.
Citron reports on $JMIA. Equity is worthless. Citron exposes the smoking gun and fraud. Not all IPOs are created equal It’s time for the SEC to protect US investors. https://t.co/dBVyQ4kKOq
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.”
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.
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]
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.
“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.”
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.”
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.
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.
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.
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.
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.
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).
Source: gorhistory.comSource: gorhistory.com
In 1862, mail was sorted en route, as a train moved between two points, using converted baggage cars.
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.
