Jumia raises $348.6m from secondary shares; here’s what it means for its business

Africa’s leading e-commerce company, Jumia has raised about $348.6 million from the sale of 8,962,961 American Depositary Shares in secondary offerings.

The company had earlier announced its intent to raise around $400 million in a secondary share offering on March 18. At the time, its shares were trading at $49.

a secondary share offering is when a company issues new shares after it has already completed its IPO

However, the shares sold at an average price of $38.90 per ADS, generating aggregate gross proceeds of $341.2 million after netting of commissions and estimated expenses.

According to Jumia, the funds raised will be used for general corporate purposes.

Here’s what it means to Jumia’s business

Jumia is worth over $3 billion

When Jumia listed in 2019, its shares sold at $14.50 a share, valuing the company at $1.1bn. A total of 13,500,000 American Depositary Shares (ADR) was listed and it was expected to make about $216 million

In contrast, the recent follow-on (Secondary) offering conducted raised $348.6 million from the sale of 8,962,961 ADR at $38.90. At the time Jumia’s valuation was over $3 billion

Another company that has seen through a follow-on offering is Google in 2005. The tech giant had its IPO in 2004, raising approximately $2 billion at a price of $85, the lower end of its estimates.

In comparison, the follow-on offering conducted a year later raised $4 billion at $295.

Jumia now has more time too break even

After the success of its Q4 report for 2020, Jumia revealed it was working towards breaking even soon. While the recent positives from reports have shown impressive growth thereby strengthening investor confidence, there is no exact prediction as to when it will reach its goal.

The new influx of funds gives the e-commerce company more time to achieve its goal. This is because the cash flow can be used as a runway even as it works toward breaking even.

Lower earning per share for shareholders

Jumia’s secondary offering diluted its shares by 10%. This means lower earnings per share for shareholders since the number of shares in circulation increases.

Dilutive secondary offering involves creating new shares and offering them for public sale.

Following the initial announcement of this offering, Jumia shares went down by over 10%. This was not unexpected as shareholder profits reduced.

However, after the completion of the secondary offering, the market is surprisingly reacting positively as the share price has started recovering.

In summary

The positive market fluctuations and increase in capital that came from the second offering show that it was a good move for the company. And in the long run for investors.

Although the $348 million is a little short of the $400 million the company could have raised if its share price held steady, the more important thing is that the company now has more time to break even and reach profitability.