Yahoo Finance Will Jumia Technologies (NYSE:JMIA) Spend Its Cash Wisely?
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Jumia Technologies (NYSE:JMIA) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for Jumia Technologies
How Long Is Jumia Technologies' Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Jumia Technologies last reported its balance sheet in June 2022, it had zero debt and cash worth US$351m. In the last year, its cash burn was US$254m. Therefore, from June 2022 it had roughly 17 months of cash runway. Notably, analysts forecast that Jumia Technologies will break even (at a free cash flow level) in about 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Jumia Technologies Growing?
Notably, Jumia Technologies actually ramped up its cash burn very hard and fast in the last year, by 102%, signifying heavy investment in the business. On the bright side, at least operating revenue was up 25% over the same period, giving some cause for hope. Considering both these factors, we're not particularly excited by its growth profile. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Jumia Technologies Raise More Cash Easily?
Even though it seems like Jumia Technologies is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Jumia Technologies' cash burn of US$254m is about 51% of its US$494m market capitalisation. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.
How Risky Is Jumia Technologies' Cash Burn Situation?
Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Jumia Technologies' revenue growth was relatively promising. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Jumia Technologies that investors should know when investing in the stock.
Of course Jumia Technologies may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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