Jumia Technologies AG (JMIA) 2020 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to Jumia's Results Conference Call for the Third Quarter of 2020.

(Operator Instructions) I'd now like to turn the call over to Safae Damir, Head of Investor Relations for Jumia.

Please go ahead.

Thank you.

Good morning, everyone.

Thank you for joining us today for our third quarter 2020 earnings call.

With us today are Sacha Poignonnec, Co-Founder and Co-CEO of Jumia; and Antoine Maillet-Mezeray, CFO.

This call is also being webcast on the IR section of our corporate website.

We will start by covering the safe harbor.

We would like to remind you that our discussions today will include forward-looking statements.

Actual results may differ materially from those indicated in the forward-looking statements.

Moreover, these forward-looking statements may speak only to our expectations as of today.

We undertake no obligation to publicly update or revise these statements.

For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our recent 20-F filing.

In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS.

You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website.

With that, I'll hand over to Sacha.

Thank you very much.

Welcome, everyone, and thanks for joining the call.

I hope that you are all staying safe and well.

About a year ago, we took several decisive actions in order to accelerate our path to profitability, and strengthen our foundation for long-term success.

Those were not easy decisions to take into implement, but they are now starting to pay off.

And this, despite a very volatile environment in Africa, where COVID-19 has forever been a headwind for us so far.

Today, we bring results, which show that we are very well positioned and that our path to profitability is becoming clearer and clearer.

I want to thank all our teams, all our partners for their discipline, their dedication and hard work.

We are immensely grateful for their continued support.

Together, we are on a great mission to make e-commerce successful in Africa, as was the case elsewhere in the world and drive positive impacts in the process.

Let's turn to Page 3. We have been very consistent in the strategy outlined to the market.

Now I appreciate this may sound a little bit repetitive to some of you, but I think it's very important to reiterate that the strategy remains unchanged.

It's a balance of 4 pillars.

Growing the usage of our platform, driving the penetration and development of JumiaPay, gradual monetization and cost efficiency.

Obviously, those 4 pillars are linked to each other and to some extent, conflicting with each other.

And we manage this equation on a dynamic basis, placing more or less emphasis on each pillar as we progress.

Everything we do is geared towards building a very strong platform with a very strong foundation to create long-term value.

If we take a look at some of the key actions, and I'm now on Page 4, some of the key actions that we took about a year ago and how they position us for the years ahead.

First, we have initiated in late 2019, a business mix rebalancing.

In order to place more focus on everyday product category, drives higher consumer lifetime value and to support margins.

The result of this action is we have increased the diversity of our product mix category.

We have reduced reliance on phones and electronics, which went from 56% to 43% of GMV in Q3, and we have gained more than 500 basis points of gross profit.

Our gross profit was 7.3% of GMV in Q3 last year and now it's 12.4%.

Secondly, we have made significant progress in terms of operational efficiency.

And we have generated very substantial cost savings.

We reduced fulfillment expense by 20% year-over-year.

We reduced sales & advertising expense by 55% year-over-year as we drove improvement in terms of programmatic marketing, and we leveraged the strength of the Jumia brand.

And last, one of the key initiatives that we undertook last year was the portfolio optimization initiative, where we wanted to enhance our business focus and capital allocation with the decision to exit 3 geographies.

We took the decision to exit the flight and hotel booking vertical, we streamlined our organizational structure, we implemented overhead rationalization and this is now paying off as our G&A are down 24% year-over-year in Q3.

Combined, these initiatives, we think, have really enhanced the fundamentals of the business and setting strong foundations for the long term and for the long-term profitable growth of Jumia.

If we turn to Page 5, we've -- we've been repeating also in the past that the path to profitability is including milestones.

And whenever we reach 1 of those milestones, we bring it forward.

And today, we are very pleased to share with you a new milestone.

In Q3 2020 for the very first time ever we reached breakeven before G&A cost at group level.

And I will add that the majority of countries at our portfolio were breakeven at this level in the third quarter of 2020.

Now this is obviously good news.

And as you know or you -- and I will detail that, this is not driven by a surge in volume.

This improvement is driven by improving our unit economics and working on the fundamental drivers of the P&L.

Those drivers and the fundamentals of the unit economics, you can see them on Page 6. We are now making -- this is the third line before last, we are now making $0.10 of profit before G&A on a per order basis.

A year ago, we were losing EUR 2.2 per order.

On average, each order costed us 53% less Sales & Advertising to generate, drove 29% more gross profit and was 15% cheaper to fulfill if we compare the 2 quarters.

And all this, without any surge of volume, all driven by underlying improvements of fundamentals and efficiency.

I think this positions us very well for the future.

A year ago, our losses were getting wider as we were growing, and today, the more we grow, the more profitable we become.

And not only do we expect these unit economics to continue to improve as we drive effective monetization, cost efficiencies, but we now know that growth means profitability.

And the result of all those improvements, on Page 7, is our path to profitability.

A year ago, once again, we said very clearly that our objective was to reduce our loss in absolute terms.

And I think it's very clear that we are delivering strongly against that objective.

We reduced our adjusted EBITDA loss by 10% in Q1 year-over-year, 26% in Q2 and by 50% in Q3.

All this achieved thanks to structural enhancements to our business rather than support from external factors.

As you know, from the previous release, COVID-19 provided limited to no tailwind to the business.

And in a number of respects, actually, it's rather a headwind from a P&L perspective.

You have on Page 8 an update on the COVID to remind you that across most countries of our footprint, governments opted for partial movement restrictions or localized lockdowns, rather than nationwide or all-encompassing lockdowns.

And this did not lead to any drastic changes in consumer behavior on our platform, or any meaningful acceleration in consumer adoption of e-commerce at Pan-African level.

Instead, COVID rather drove localized supply chain and logistics disruption, and there was still significant disruption with restaurants in the third quarter of 2020.

Obviously, we don't know the future development of the virus and its impact in the future, but we expect it to drive continued uncertainty on our operating environment.

We also expect the macro challenges it has created to weigh on consumer sentiment.

We believe that all the actions that we took a year ago that I just detailed, and the current strategy have actually enhanced our resilience, and position us very well for long-term whatever happens.

Let's now deep dive in more details on the Q3 performance, and we'll start with the trends on usage.

We are now on Page 10.

As we have just said, we look at the usage dynamics in the context of efficiency and monetization.

One of the major drivers of usage is, of course, the marketing investment.

We have built over the last 8 years, 1 of the strongest brands in Africa, and this now makes it possible for us to drive usage with record level of marketing efficiency.

We reduced Sales & Advertising expense by 55% year-over-year.

A year ago, we were spending about EUR 2 of Sales & Advertising to drive each order.

Now we spent EUR 0.90; that's an improvement of 53%.

If we take the 12-month perspective, we spent EUR 5.60 per active consumers.

A year ago this number was almost EUR 10, so that's an improvement of 43%.

Now in terms of usage metrics at group level, GMV was down 28%, orders down 5% and active consumers grew by 23%.

Those evolutions, obviously, have to be put in perspective with the actions we are taking, and in particular, the business mix rebalancing.

Let's turn to Page 11 to review those usage dynamics in a bit more detail.

First, we are making significant progress on the rate of cancellations, failed deliveries and return.

The ratio that we call CFDR.

If you look at this ratio as a percentage of GMV, it decreased from 31% to 23% in Q3 2020.

If you look at it on an order basis, it came from 23% to 14%.

And typically, this ratio tends to be lower for orders as the higher average item value tend to show higher cancellation rates or CFDR rates.

There can be always quarterly fluctuations, obviously, in this ratio, but as we drive more operational efficiency, as we drive more penetration of JumiaPay, we are able to drive improvements in this ratio.

And it's a very good news for us because it means that a higher proportion of the usage that we generate on the platform can be monetized and that our marketing investment is more efficient on a net basis.

Then secondly, when you look at the trends of GMV and orders after CFDR by category, you can see very strong resilience, particularly in key focus areas.

Food delivery is growing by 37% in value, 48% in volume, and this, despite in Q3, still a lot of headwinds from night curfews, which have impacted dinner deliveries.

I think we would have grown even faster without those disruptions.

Digital services growing by 14% in value as we continue to see faster growth in higher ticket on the JumiaPay app and orders contracted by 20% as a result of a concentrated decline in airtime recharge transactions.

And this airtime recharge transaction were reduced as a result of reduced consumer incentives from us within this category because this category tends to be more promotionally intensive.

And this is a good example of our disciplined approach regarding consumer lifetime value.

Physical goods, which is a big part of our core business, outside phone and electronics, we were flat in value and growing 15% in volume terms as categories like beauty, fashion, home and living, continue to support the volume growth.

Phones and electronics declined by 41% in value and by 8% in volume as the effects of the business mix rebalancing continue to play out over the quarter.

So overall, we drive usage as a balancing act between, of course, the marketing efficiency, the profitability gains on the 1 hand and the long-term platform relevance and growth on the other hand, as we lean into categories and business that supports consumer lifetime value.

We are pleased with the diversity achieved on the marketplace and a meaningful step-up in unit economics that you can see on Page 12.

And here, I will go fast because we have, to some extent, already talked about those numbers, you can see the evolution of the reliance on phones and electronics, which have gone from 56% to 43%.

And you can see that with that, our average order value has decreased by 24%, as the everyday product categories have been gaining share.

And you can see our orders are now much more profitable.

In Q3 2020, after G&A and Sales & Advertising, we are now positive, whereas a year ago, we were losing more than EUR 2. So again, we're very pleased to achieve this milestone.

Especially knowing that the trend is quite consistent across our portfolio, with the majority of the countries breaking even at that level.

The diversification of our mix and assortment always goes hand-in-hand with the meaningful improvement made on the supply side of the marketplace.

And on Page 13, you can see how we are reinforcing Jumia's positioning as the destination of choice for brands in Africa.

In the Q3 2020 alone, we onboarded over 60 brands on the platform.

We hosted the Jumia brand festival over a full week in September.

With more than 200 participating brands offering promotions, special promotions, free shipping across product categories, and we had many great brands participating, including L'Oréal, NIVEA, Johnson & Johnson, Reckitt, Nestlé, Pernod Ricard, Pepsi, Nike and many more and -- participated, of course, across multiple geographies.

And to give you a sense of the success and the impact, in Egypt during that week, orders grew by more than 70% compared to the prior 6-week average with Fashion, beauty and FMCG categories accounting more than 80% of the items sold.

So for us, it was a very big success.

And a lot of brands experiencing triple-digit volumes at least during the event.

This partnership with brands, but also with SME sellers as well as our cross-border sellers are extremely valuable to us.

And as a marketplace, we want to create value, of course, for the consumers but also for the sellers.

And we strive to give to our sellers the best possible experience and to give them a platform to grow and to reach consumers effectively in Africa.

And to also provide to those brands an expanding range of services to drive their performance.

Our second objective is JumiaPay.

On Page 15, you can see that the TPV, the total payment volume of JumiaPay increased by 50%.

And that the on-platform penetration reached 26%.

We have doubled our penetration of JumiaPay versus a year ago.

On the next slide, Page 16, you can see that the transactions of JumiaPay have increased by 6%.

And when you look at the growth of the transactions, which are above EUR 10 and the growth of the transaction below EUR 10, you can see what I was mentioning before that we have 90% growth of the transactions above EUR 10.

And that decline is -- or is very concentrated across certain transactions, which are concentrated in airtime.

You can see also that the penetration on a per-order basis is now at 34% and compared to about 31% a year ago.

JumiaPay, as a reminder, is live in 8 markets, Nigeria, Egypt, Morocco, Ivory Coast, Ghana, Kenya, Tunisia and Uganda.

And our goal for JumiaPay is to drive a very gradual expansion across geographies at this stage, but rather to enrich the value proposition of JumiaPay and deepen its offering.

On Page 17, you have some more details on that.

As you know, JumiaPay goes beyond digital payment and the checkout function it serves on our platform.

It has a dedicated digital services app, which is called JumiaPay, and it functions as a marketplace for financial services.

On the digital service app of the JumiaPay app, we offer a broad range of everyday services like deal payments, airtime recharge, ticketing, entertainment and many more.

In Q3, we launched the pilot of Jumia Games on the app across 5 countries.

This is a partnership and -- with Mondia, which is the marketing and digital content distribution company.

And Jumia Games is a subscription-based service, offering unlimited access to over 500 games, including in-app purchase.

And this initiative aims at providing consumers with a varied range of digital services, engaging experiences while creating more payment use case for JumiaPay.

On the fintech side, we offer consumers and sellers an expanding range of financial services provided by preferred key financial institutions.

In Q3, we launched the pilot of a prepaid physical and virtual card in Egypt, in partnership with Mastercard and ADIB, which is a leading bank in the Middle East and North Africa region.

Our financial services marketplace helps us drive more financial inclusion, allowing consumers and SMEs to access basic financial service in a convenient and safe manner.

I'll now hand over to Antoine, who will walk you through our financial performance, starting on Page 19, please.

Thank you, Sacha.

Hello, everyone.

In parallel with driving usage, we continue to gradually monetize our platform.

In the context of the 28% year-over-year GMV contraction in Q3 2020, the marketplace revenue increased by 19% and gross profit by 22% over the same period.

As we draw the usage of Jumia, we seek to gradually monetize this usage to diversified revenue streams that absorb a growing share of our cost base.

Taking a closer look at our various marketplace revenue streams on Slide 20, you'll see that commissions increased by 43% year-over-year due to an increase in the share of higher commission rate categories, including fashion, beauty or FMCG as well as lower promotional intensity.

Fulfillment revenue increased by 13% as a result of continued shipping fees adjustments as well as pricing changes within our cross-border logistics.

Part of the international shipping fees that were previously charged to sellers were instead passed on to consumers.

This change resulted in some of our international logistics revenue to be reported as fulfillment revenue instead of revenue from value-added services.

Value-added services increased by 4% as adjustment to our shipping fees led to an increase in shipping contributions from local sellers, which more than offset the effect of the pricing changes in our cross-border logistics.

We manage monetization pressure on our sellers in a very disciplined manner.

And during the third quarter of 2020 reduced pressure on the advertising front, leading to a decrease of 2% of this revenue stream, while placing more focus on fulfillment cost pass through.

It is worth noting that we remain in the early stages of our monetization journey.

Commissions and fulfillment fees, which are the bread and butter of the marketplace, still account for more than 70% of the marketplace revenue.

We intend to further diversify our revenue mix, leveraging multiple monetization avenues, which are largely untapped today.

The potential for further monetization is both on the core e-commerce marketplace, but also on the assets that underpin the marketplace, digital payments and logistics in particular.

If we look at the core e-commerce marketplace, the first phase of monetization was about enabling transactions, earning commissions and fulfillment fees in return for facilitating the transaction.

We expect to grow these revenue lines as we drive more usage on the platform.

But the next phase of e-commerce monetization is about unlocking more growth for our sellers and broader platform participants.

Through value-added services such as training or content creation through marketing and advertising solutions and also data analytics for performance analysis and informed business decisions.

As we onboard more brands and our base of sales gains in sophistication, we expect to see growing traction for these services.

Payment and logistics have historically been core infrastructure, supporting the growth of the marketplace.

However, these assets have tremendous growth potential in their own right beyond the scope of the e-commerce marketplace.

JumiaPay app, digital services and financial services marketplace activities are very much in their early days today.

We see tremendous growth potential for commissions earned from these activities as we grow more usage on the JumiaPay app and broaden our fintech services offering to both sellers and consumers.

The core digital payment asset of JumiaPay is not monetized today as all payments processed today are in relation to junior e-commerce transactions.

We are working on offering JumiaPay checkout transmission through third-party accounts, and intend to expand into both digital and offline payments in the future.

Last but not least, Jumia Logistics supports the Jumia e-commerce transactions, and we earn fulfillment revenue essentially to cover our fulfillment expense.

We have now launched logistics as a service offering where third-party businesses can access the Jumia Logistics platform to help them meet their delivery needs.

And I would like to give you more context and color on this initiative.

Logistics in Africa are notoriously challenging with multiple hurdles such as lack of addresses, a lack of organized and reliable capacity, storage space issues, the predominance of cash on delivery and so on.

With Jumia Logistics, we have built a tech-rich platform uniquely adapted to address these challenges.

We leverage a network of over 300 third-party logistics partners that we manage through a [proprietor back stack].

That allows us to have a full visibility on the journey of the package, manage all fulfillment workflows and optimize delivery time through volume allocation and smart footing.

In parallel, we have an extensive network of leased physical locations including warehousing space in every single country where we operate and over 1,300 consumer pickup stations and vendor drop-off stations.

It is now possible for third-party businesses to access this platform for last-mile delivery services or end-to-end fulfillment services, including warehousing, picking and packing and last mile.

We are very pleased to offer the services of our logistics platform to solve a major distribution pain point in Africa.

We hope this will serve as a catalyst to drive more trade in the countries where we operate, while generating more volumes for the logistics SMEs that form part of our network.

Let's now turn to cost on Page 24.

We have been driving efficiencies across the full cost structure.

We are pleased to report yet another quarter this year of record gross profit after fulfillment expense, which reached EUR 6.6 million compared to a loss of EUR 1.7 million in Q3 2019.

Fulfillment expense decreased by 20% in Q3 2020 compared to Q3 2019, as a result of operational enhancements across our logistics operations.

These included the optimization of our cross-border shipping metrics, staff cost savings in our own fulfillment centers and the change in our delivery pricing model from cost per package to cost per stock.

In addition, we are able to pass on an increasing proportion of our fulfillment expense to the combination of the consumers and sellers via our fulfillment and value-added services revenue streams, respectively.

The pass-through of our fulfillment expense measured as a ratio of fulfillment plus value-added services revenue over fulfillment expense, increased from 58% in Q3 2019, up to 79% in Q3 2020.

Sales & Advertising expense decreased by 55% from EUR 13.8 million in Q3 2019 to EUR 6.2 million in Q3 2020, its lowest level in more than 3 years.

All marketing efficiency metrics are showing strong improvement.

Sales & Advertising expense per order decreased by 53% from EUR 2 in Q3 2019 to EUR 0.9 per order in Q3 2020.

Annual Sales & Advertising expense per annual active consumer decreased by 43% from EUR 9.9 per annual active consumer to EUR 5.6.

And Sales & Advertising as a percentage of GMV decreased by almost 200 basis points from 5.3%, down to 3.3%.

These efficiencies are made possible by the strength of our brand.

They are also attributable to continued enhancements to our performance marketing strategy across certain social media channels, including through more granular segmentation of our target market with differentiated campaigns and content for each segment.

Finally, our third major cost area is technology and G&A.

And we are now seeing meaningful improvements here as the rationalization efforts undertaken late last year start paying off.

G&A expense, excluding SBC, dropped below EUR 20 million for the first time in 9 quarters.

G&A expense, excluding SBC, reached EUR 19.3 million, down 24% year-over-year.

This was partly a result of staff cost reductions and professional fee savings, largely attributable to the portfolio optimization and cost rationalization initiatives undertaken in late '19.

Moving on to the balance sheet and cash flow items.

Our path to profitability is further supported by our asset-light business model.

CapEx in Q3 2020 was less than EUR 0.5 million, as we operate Jumia Logistics as a platform with very limited CapEx requirements.

Net change in working capital resulted in an inflow of EUR 4 million supported by reduced inventory and shorter receivable cycles.

Cash utilization was EUR 27.2 million, corresponding to a decrease in cash and cash equivalents of EUR 22.1 million, down 52% year-over-year.

And a foreign exchange loss of EUR 5.1 million on cash held in USD.

The EUR 3.5 million net settlement expense for the transactions will likely be booked in the course of Q4 2020.

You may have noticed that we made the shelf [mining] early on this summer, allowing us to issue up to 18 million ADS over the course of the next 3 years.

We are making significant progress towards breakeven, which gives us more flexibility in terms of liquidity.

That said, we intend to take advantage of opportunities in the market to raise capital in the future, to strengthen our balance sheet and further increase our flexibility.

With that, I hand the call back over to Sacha.

Thanks very much.

And to conclude, let's -- I would like to give you some perspective on what -- how we see the achievement to date and where do we go from here.

We opened the call by saying our strategy is a balance of 4 key pillars and that we manage this on a dynamic basis.

I think over the past 12 months, we drove the business and those 4 pillars with a sharp focus on profitability.

And we are, in our opinion, delivering very strongly against that objective.

If you look on Page 26, comparing our business for the first 9 months of 2019 with 2020, I think it's very clear that it's working.

We have improved everywhere and pretty significantly.

Only GMV is down, and this is largely by choice.

And as you are seeing, there are lots of pockets of growth in our business, both in volume and in value.

We now have a business mix, the cost structure and fundamentals to support the long-term profitable growth of Jumia.

And once again, this has been achieved without any volume surge or any particular tailwind.

So it speaks to the quality of the underlying business, and it makes us very confident about our path to profitability.

Now you may ask the question about why we are so focused on profitability right now.

And we wanted to remind you why we are so focused on profitability.

We think that our business model is proven.

The success of companies like MercadoLibre, Alibaba, Amazon, I think there's not really any doubt about that.

Secondly, the potential of Africa is huge.

There are decades of growth ahead of us to drive the adoption of e-commerce and payments.

E-commerce is very relevant in a continent where distribution of goods and services is very challenging for all the sellers in the offline world.

So I think on that, there's not really any doubt either.

Three, I think over the years, we have proven that we can operationally overcome all the challenges and the challenges like payments, logistics, building a scalable marketplace of consumers and sellers.

And so having said all this, the real only remaining point is to make sure that as the business scales, it is profitable.

And once this question mark is behind us, we are going to be much more comfortable reaccelerating the growth of the usage because we will know that the business is inherently profitable.

And this is why we are so focused right now on delivering on this objective because this is pretty much the only question mark remaining.

And I think, as you have seen in the Q3 results, we are getting closer and closer.

And so what do we expect until profitability is no longer a question?

We are going to continue to follow the exact same strategy.

We're going to continue to bring new milestones as we reach them, and you can expect more of the same choices, meaning the balancing of selective growth with efficiencies, driving increased monetization and cost efficiencies and all this while continuing to drive the penetration of JumiaPay.

And as soon as we achieve profitability, then we can put more emphasis on acceleration of growth as well as some of the other opportunities, which are outside the current focus.

And that we remind you or we put here on Page 29.

Once we reach the milestone of profitability, we can confidently start allocating more resources to growing faster our user base, putting more resources behind JumiaPay, to accelerate in payment and fintech, putting more resources behind Jumia Logistics, perhaps as a stand-alone company, explore other avenues of growth like gaming, digital content, geographical expansion and many more, right?

We think that we operate a very relevant business.

E-commerce, food delivery, payment, logistics.

We have proven that we can do it in Africa.

We have built it as a platform, able to scale and expand.

We operate an asset-light company with significant geographical and category diversification, we are very confident about the future.

And I think the recent results are very encouraging to us.

So with this in mind, thank you very much for attending the call, and we are now ready to open up for a few questions, please.

(Operator Instructions)

The first question is from Ralph Schackart from William Blair.

You made some really good strides in logistics and marketing fulfillment, expense decreased during Q3, I think, down by around 20% and 55% or so year-over-year, respectively, which is really great progress.

Sacha, you talked about doing this in an environment without a surge in volume.

But maybe just kind of taking a step back, assuming there's not a, I guess, near-term or outlook for a surge in volume, where do you think further progress could go on this front?

Do you really need that surge in volume to continue to get these really decreased -- strong decreases in expenses year-over-year?

Just maybe some more color on this would be great.

Yes.

Thanks, Ralph, for the question.

And I think one of the -- it's a very good question.

And we've kept repeating over the last 2 years as we became the process of going public that we were betting not on any surge, but rather gradual adoption of the e-commerce in Africa.

And that all things considered, we don't need much to change to take the company to profitability, but we just need to continue doing what we're doing.

And I think if I look about -- if I look at how -- where do we go from there, I think, from a unit economics improvement, there's a lot that we can still do to continue to increase them, right?

And number one, there's a lot of monetization avenues that we have just started to explore and some of them that we have not even started to explore.

And those monetization avenues, they include our own ecosystem and even going outside the ecosystem, right?

So I think there's a lot we can do to further increase the advertising services that we provide to sellers and to third parties.

We have just started to open up Jumia Logistics to third parties, and this is going to be gradually increasing and contributing over the months to come.

We have not even started to monetize JumiaPay at all.

We are not making any money on payment service provider activities and so on.

So I think there's a lot that we are going to do to increase revenues even at -- with the same size of the business.

Secondly, on the cost side, of course, the cost, to some extent, we need volume to drive meaningful improvement, but there's still a lot that we can do to improve on the cost.

So the unit economics will continue to improve regardless of the surge.

Now without a surge, I think we're going to continue to grow.

And we have brought you some details and opened the box for you to see where the growth is.

And we are very confident that there's a lot of growth in the business and that the growth is where we want it to be.

And we are extremely confident of the relevance of the business model and that we're going to continue to grow especially where we want it, right?

So there's going to be some volatility, but we're going to keep bringing you the situation.

And then if there is a surge, then even better.

But we are not betting on it; we're betting on the same trajectory, meaning that we're going to grow where we want in selective areas, which are relevant to consumer lifetime value and relevant to our margins.

And as we do that and work on the monetization and cost efficiency, I think we have a very good year ahead of us and very good position to drive the business forward.

The next question comes from Mark Mahaney from RBC.

Let me ask 2 questions, please.

First, the -- for the first time, you had a decline in active customers sequentially.

I know it's a trailing 12-month metric, but could you talk about that?

And is there something you can do to stabilize that?

Is -- should we expect the customers to come down, is that part of the rationalization, are you trying to shed unprofitable customers?

Or is that something that you can reverse?

I assume that the goal would be to grow active customers over time.

So just talk about what happened in the quarter over the last 12 months and then your confidence in your ability to grow that.

And then secondly, with 1P revenue and there's so much focus that you have on the marketplace business for understandable reasons, better economics.

Do you think that there's -- is it reasonable to assume that you'll just all flat out exit the 1P e-commerce market and just focus on the marketplace business?

Thanks, Mark.

And I think very good questions to -- before we answer on the Q2 to Q3 active consumers, I think it's important to remind that the active consumers are, as you pointed out, but I want to make sure it's clear for everyone are on an LTM basis.

So those are the last 12 months active consumers.

So when we compare Q2 2020 and Q3 2020, we are comparing the last 4 quarters.

So Q2 '19 to Q2 '20 to Q3 '19 to Q3 '20, right?

So the [reverse of the mix] that can happen in this metric.

And I think it's quite important to keep this in mind.

Now of course, I think when we look at Q2 and Q3, we are seeing a trajectory where between Q2 and Q3, we have continued to make a lot of progress on efficiency, right?

We have decreased our Sales & Advertising expense by about 14% between Q2 '20 and Q3 '20.

We have increased our efficiency, if you compared the last 12 months to the active consumers, we have increased efficiency by 16%, right, between those 2 quarters.

So I think you need to keep this in mind, to some extent, it's also a result of some of the choices we are making and -- on the CLB.

So typically, there will be some of those consumers who would be interest to -- we observe that those consumers are only reacting to promotions on airtime and things like that.

So probably some of those consumers that have disappeared as part of our choice to only focus on really positive consumer lifetime value consumers.

So there must be some of that.

And then I think we don't expect this trend to continue, right?

Over time, we expect that the trend will continue to go up on this metric, and we feel very confident about that as well.

Then on 1P, I don't think we will -- I'm not going to say ever, but I don't think we will, in the years to come, stop doing 1P.

I think 1P is a very attractive possibility for us because we operate in a market where the supply can be sometimes volatile, and there can be very regular situations, which -- for which it's a very good advantage to be able to buy and sell, right?

And we do 1P, and we engage in 1P when we think that it's necessary or that we can benefit from it to drive the relevance of the marketplace for the consumers or when there is a shortage of supply or something like that.

And I can tell you, for example, right now, we are running -- when preparing Black Friday, our commercial event as we speak.

And we always like to do a little bit of retail.

It helps and it drives good economics, good margin and good relevance for the consumer.

So certainly, we're going to continue to be a majority marketplace, I think, but we will still see some 1P.

It's a very good and efficient tool for us.

Next question comes from Aaron Kessler from Raymond James.

A couple questions.

Maybe just a follow-up kind of on the last question.

I think I also noticed average order value is down about EUR 5 sequentially.

And I think it was about a similar level for electronics to last quarter.

Could I get some insights on the average order value.

And then just maybe on the advertising, kind of how are you thinking about kind of the optimal level of advertising do you think you're at that today?

Maybe which channels are you more focused on as well going forward here?

And finally, any Q4 trends, quarter-to-date trends you would point out as well.

And, thanks, Aaron.

On the advertising, you mean on the expense, right, not on the revenue, right?

Correct.

Correct, correct.

Yes.

Yes, yes.

So the AOV first is really not something that we solved for, right?

The AOV, for us, we see it as an output of the usage of the consumers on our platform.

And it's not something that we are necessarily focused on trying to drive higher or lower AOV, right?

We are focused on driving relevance and certainly, we have been driving a lot of the everyday categories, which have lower item value.

So we were very much expecting this drop of AOV and something that we have been planning.

But in a way, we observed the AOV more as an output of what people decide to buy.

And what also items people decide to buy.

And the AOV is also a function of the number of items that people put in their basket and the price of this item.

So there's just so many factors which go into the AOV, but first we observe the AOV, we post rationalize it because, of course, this is something that that we look at.

But it's not something that we solve for, and we don't have a particular goal.

Our goal is that our consumers, our CLV, consumer lifetime value, their value is positive.

And that when they do orders, those orders take us to profitability, right?

So I think the AOV is what it is, and it's moving in the right direction according to us, and it makes a lot of sense.

But we don't solve for a particular number and nor do we aim at a particular number for the business.

And on the advertising, we are primarily driving spend through the online and performance channel, it's the majority of our spend.

And here is, of course, a mix of all the existing channels, and it's very diversified, I would say, and it's very granular.

But it's a mix of performance channels, like app installs and then retargeting and affiliates, et cetera.

So it's a lot of, I would say, performance marketing channels, very granular and very programmatic and performance driven.

And then we have -- the next most significant is the off-line commissions that we offer to our JForce program people, right?

So remember from previous discussions, we have a very attractive JForce program where individual people can sign it and can earn commissions and fees when they recruit new Jumia users.

And so we have this program pretty much live in all our geographies, and it's very successful.

So it's also a meaningful part of the advertising expense.

And we think that it's going to continue being very granular and being very diversified.

We are constantly looking for ways to optimize and also looking for ways to create new advertising channels for the users to recruit new users.

And last question is, any Q4 trends, I know you're not giving official guidance, but any Q4 trends you would speak of to date?

Yes.

It's a little bit early to talk about that.

And we just launched Black Friday.

Black Friday for us is actually almost a full month of shopping festival.

And so it started last Friday in most of the countries.

And it's an event, which is based on, of course, there are 4 Fridays, which have bigger offers and bigger commercial events, I would say, but it's something that really builds up.

So it's a little bit too early to tell, unfortunately.

Next question comes from Sarah Simon from Berenberg.

I've got 3 questions, please.

First, on SG&A.

What do you think is a -- the right or, let's say, sort of stable quarterly SG&A cost?

Because obviously, the numbers come down very significantly.

Should we expect that keeps coming down?

Or do you think we've kind of hit the right level?

Second question is, if you look at GMV, and you've given a helpful spread of mobile phones coming down.

But actually, what that implies is that everything is not mobile phones, and electronics is flat to slightly down too.

I'm wondering if there are categories within that that have been particularly weak versus others that have been strong because obviously, you've talked about very strong growth in food delivery.

And you've talked about FMCG categories is growing strongly in the past.

And then the final question, I appreciate you don't want to give any guidance yet on Q4.

But obviously, you started -- well, let's say, we started to see in the numbers this significant shift towards selling profitable goods in Q4 last year.

So is it reasonable to think that the rate of decline in sort of raw GMV should moderate in Q4?

Or do you think there's just still more of this shift away from high-priced goods still to go?

Yes.

Sara, and I wish we had a crystal ball in a way or that we could.

But I think on this one, and the last question on the guidance, it's very hard to tell.

I agree with you that the comps should become more favorable with time.

And we initiated the business mix rebalancing really about a year ago.

And of course, I mean, not everything happened overnight, right, as you can imagine, and it's more like a phase of the business.

And there's so much volatility in the market right now in terms of supply disruption.

And also, to some extent, we start to see the first impact of probably the economic crisis on the consumer behavior and so it's very hard to predict.

What we can say is that I think there's a lot of growth in the business, and it may not always come from the same pockets, but there's a lot of momentum on many aspects of the business.

So it's hard to tell if we're going to see more of the same or if it's going to start being more favorable on a consolidated basis.

It's really hard to tell, unfortunately.

But I think we're going to have to see where this goes, but we will continue to bring you also the breakdown of the business so that you can see where it's growing, where it's not and that we are able to explain it.

And that is also speaking to your question number two, the granularity of the growth of the business is, of course, when you deaverage the GMV outside phone and electronics, you have a lot of different categories and you have a lot of different dynamics, which are taking place by price points, by subcategories and certainly, there, you have some subcategories, which are growing faster, some of which are growing less faster or even shrinking year-over-year.

I think it's also hard always to look at year-over-year because one has to then explain the dynamic of such and such category about a year ago and how it's changed, et cetera.

So I think we see that there's a general dynamic around lower item value, more profitable orders, more profitable consumers.

But it's hard to just categorize, okay, we are growing on ABCD category, and we are not on ABCD.

I think the general trend is that we are growing outside phones and electronics.

And on phones and electronics, we are not growing because we're driving the share down.

And that's it for now.

Then on SG&A, I think, to some extent, we need to -- if you look at the trajectory of it, you can see that we have managed to really, I would say, protect, almost protect the investments that we bring into technology.

And that we have managed despite cutting a lot of the overheads to really keep investing in our technology because we think it's for the long term, and it's very important to drive the future monetization and efficiency ahead of us.

And on the rest, certainly, the focus for us is going to be on more of the growth of the usage, growth of the monetization and JumiaPay rather than further cutting the G&A, right?

So there may be some improvements here and there, but I think it's fair to think that, for us, the focus is going to be on continuing to grow the gross profit after procurement.

And to do that by continuing to improve the economics and continuing to improve the growth in the selected areas.

And rather than continuing to cut G&A because I think it's a better ROI to continue to grow the business and increase the unit economics rather than continuing to reduce.

So I think maybe some modest reduction, maybe some modest increase, but fairly flat.

The next question comes from Brian Nowak from Morgan Stanley.

This is Matt on for Brian.

Is there any material divergence in your largest countries, where you are performing better than others?

And if no, what differentiates those countries?

Yes.

Alex, no, the answer is no.

So we are seeing some differences here and there.

When you put side-by-side, of course, the unit economics, the category mix and et cetera, et cetera.

But overall, it's very consistent, I would say, and generally very consistent.

And I think that's something that we are happy about also because the good results that we see are not driven by one country, they're really driven by all of them.

So in the portfolio, you have some countries which are going a bit more than others or being more profitable than others, et cetera, but I think it's pretty consistent.

The next question comes from Catherine O'Neill from Citi.

I just had a question on the logistics of the service plan.

I just want to understand how as you think about the capacity you have for that without impacting the core business?

How actively you're marketing the service?

And how should we think about the sort of size of the opportunity?

Yes.

I think the size of the opportunity is, I think, enormous, right?

And I say that because we know when we started that business 8 years ago, we were dreaming of finding a Jumia Logistics, right?

And we built Jumia logistics, of course, because in a way, we had to, we had no choice, right?

And if they had been a very extremely efficient fulfillment ecosystem where we could have told our sellers just to drop your package, and they'll take care of everything, then we would have leveraged that, right?

So we had to create this, and it's been a very, very big investment from us in terms of resources, in terms of technology, in terms of time.

And I think now we have it.

And now this asset, I think it's a very, very sizable opportunity because we have -- we think we have a very unique system.

We have a very unique system, which provides end-to-end visibility, reliant or reliability, sorry, and cost attractiveness to every single SME who's -- who needs to move goods from A to B. So I don't know exactly the size, but it's -- I think it's extremely sizable.

And with that in mind, we are really in the phase where we have successfully piloted the service in multiple countries.

When I say piloted, it means that we've had a few hundred consumers who have consistently and regularly shipped packages with us.

And we think that we are now ready to scale.

And that we're going to gradually go out and start pitching the service to consumers, to sellers, to SME and just scale it at the rhythm at which they come to us.

So certainly, we will never compromise the Jumia business in case there is a trade-off to be made, and we will limit the capacity if we have to.

And we will see how it's coming in the next 2 months.

And as we start to market the service, right?

So it's something which, for us, is a very good addition to the business.

And we're not going to market it very aggressively.

We're going to go out, and we're going to -- as we do -- as we always do, we'd prefer to have a few hundred consumers who are regular consumers -- consistent, and then we continue to scale as we see that the business is creating value for them.

And certainly, we don't see any issue of capacity for -- in the near future.

I mean we would have to believe that there's a huge surge in demand to do that.

And as I said, we don't believe in surge, we believe in gradual changes.

Okay.

Can I also just ask, in terms of kind of warehouse capacity, I think there was a slide saying you've got about 110,000 square meters.

How do you expect that to evolve over the next sort of 2 to 3 years?

And what kind of investment is required in warehouse capacity?

Or is that enough for the next couple of years?

Yes.

It's generally going to increase pretty gradually, right?

And the warehouse space is -- does not require much CapEx because our warehouse space is dedicated to storage and pick and pack and to consolidation of packages.

And they're basically coming in and out of packages, right?

So in a way, it's pretty simple to scale if we need.

So I expect that we're going to increase gradually here and there, but no meaningful change in CapEx or investment to do it because it's really storage space and shelves.

So it's nothing that requires big investment, and we always rent those spaces.

So there's no big change here that we expect in the next -- should be in the next 2 years, I would say.

The next question comes from Lamont Williams from Stifel.

So as you bring down your advertising costs, what are you seeing in the customer acquisition costs?

Is that coming down as you leverage more of the brand?

And then is there anything you can give us in terms of how you're thinking about the time line to JumiaPay monetization?

Yes.

Very good question.

So same we see pretty much the same trends on the customer acquisition costs than on all the marketing efficiency metrics.

So this one is following the same direction.

And so we're also happy with that and confident with that.

On the JumiaPay monetization, we are almost there to start probably piloting JumiaPay as a payment service provider so this is something that should take place in the near future.

And we expect that we can pilot it in the next few quarters, right?

So definitely, we want to pilot it next year.

And then I don't think it's going to become meaningful in our revenues in the next 2, 3 quarters, but we certainly want to at least pilot it in the next few quarters.

There are no more questions in the queue.

This concludes our question-and-answer session.

I would like to turn the conference back over to Sacha for any closing remarks.

Great.

Thank you so much, everyone.

I think we're over the hour.

So really appreciate you joining.

Thanks for the support.

And as always, we are available if you have any questions.

And we wish you the very best.

Take care, everyone.

Bye-bye.

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