Jumia Fraud - Yes or No?

Jumia "The Amazon of Africa" $JMIA has been a shockingly controversial stock, with bulls calling it the greatest investment opportunity since Amazon and bears alleging funny accounting and fraud.  Here is how the stock has performed since its Apr 12th IPO.

$JMIA daily chart since its IPO

The stock is currently below the IPO price of $14 (closing prices yesterday was $12.30), so this is a place many investors might consider a good time to buy.

Oh May 9th, the well known short selling firm @CitronResearch (with over 100k followers on Twitter) alleged that the company was a complete fraud and that the equity was worthless.

@CitronResearch tweet about $JMIA May 9th

Here is the original Citron Report - Not All IPOs are Created Equal Jumia is a Fraud.  They also published a follow up report Jumia - Indisputable Evidence of Fraud on May 28th.

In a nutshell, @CitronResearch claims that the company misrepresented business data in the S1 filing, and they @CitronResearch had come across internal documents that included data that varied widely from it IPO filing.  Citron says that these discrepancies show many orders are fraudulent or returned orders and that GMW (gross merchandising value) is 30% overstated.

Although the financial media, has, to a large extend, disagreed with @CitronResearch and continues to produce bullish content.

CNBC produced an 8-minute video on Jumia - How the Amazon of Africa dominated the African continent, which is general is pretty upbeat and brushes aside @CitronResearch's fraud claims.

Motley Fool produced a 30-minute podcast on Jumia - Jumia's Definitely One to Watch, which cited that, yes, the company does have some risk, because investors cannot predict the future, but that the opportunity is huge and after reading @CitronResearch's report, they were no convinced of any misconduct.

Nevertheless, the short float has rocketed in recent trading, with Finviz saying that the short float has reached an astronomical 84%!   (this is given that there are 6.75mm shares in the float currently with 5.7mm shares held short, however there are still MANY shares under lockup, making the outstanding share count 77.5mm).

Finviz short float for $JMIA

In the most recent drama twist, the company reported earnings on Aug 21st where the stock dropped another 16%.  The headline number of profits and sales looked okay relative to expectations, but the company disclosed some updates regarding its internal audits.  It found, that, yes, members of its sales team may have engaged in improper transactions accounting to 4% of GMV (gross merchandising value) in the first quarter and various amounts before that time.  The company said they have either fired or suspended the suspected employees.

The company also said that they are facing several class-action lawsuits against misleading statements in its IPO prospectuses.  And what's notable here is that the company has yet to defend against these allegations (usually a company will say it will vigorously defend against such untrue claims).

Today Jumia has a market cap of about $800mm with annualized forward revenues of about $175mm, so its trading at about 4.5x forward sales.  Compare that with super high flying IPOs like Zoom, Beyond Meat, or Crowdstrike who are trading at 50x forward sales, then it makes the company look super cheap.  However, until we can get the stench of fraud off of this company, we are unlikely to rocket to the upside.

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