Why is Konga Worth “Only” $35m And Jumia $1 Billion?
The CEO of Jumia Morocco, Bastien Moreau pen down an interesting brand valuation article between two of African biggest e-commerce Konga and Jumia.
In Nigeria, today’s largest market for African e-commerce, two players are leading the way: Konga and Jumia. Both created in 2012, they have been competing from the beginning for the market leading position.
In April 2015, when Konga raised $40m from Naspers in Series C, it recorded a record valuation of $200 million. Unfortunately, a few months after round, the Nigerian e-commerce giant was badly hit by the Naira crisis in Nigeria and its value was immediately corrected by its investor Kinnevik down to $35 million (SEK101 million for its 34% stake).
Only 3 months after this, in February 2016, Jumia broke all records raising €425 million from AXA, Goldman Sachs, Orange and CDC at a $1 billion valuation. This was the largest VC round ever done in Africa and made Jumia the very first unicorn of the continent.
Why is that? How come two companies closely competing on their main market (Nigeria) can show such different signals at the same time?
Ecosystem vs stand-alone e-commerce
Very early in its young start-up life, Jumia started diversifying trying to be present in as many different markets as possible. A few months after the launch of the e-commerce platform Jumia in 2012, Hellofood, a food delivery service was launched, then came several classified websites for housing (Lamudi), cars (Carmudi) and jobs (Everjobs). Finally to cover the full range of e-commerce, Kaymu was created as a C2C integrated marketplace.
This diversification was both horizontal and vertical: in order to support their business, Jumia decided from day 1 to develop a proprietary logistics platform to store products, prepare packages and even operate last mile delivery (AIG Express).
In 2016, Jumia group decided to unite its assets by operating a full rebranding of all its services under one name Jumia. This move highlights what is probably the biggest asset of Jumia: the capacity to build a 360 degree ecosystem covering all the biggest markets addressable online. Even though each segment in each country may not be neither market leader nor worth a lot, added to the other services, they all participate of building a strong ecosystem and brand where everything can be found: a new phone, a used washing machine, a pizza for delivery or even an apartment to rent.
Konga on its side decided to focus on its e-commerce activity and to exclusively invest in vertical integration with logistics and payments (KongaPay). This move was aimed to build e-commerce enablers but left Konga fully dependent on its e-commerce business.
Geographic diversification to mitigate exposition to unstable markets
End 2015, only 8 months after Konga Series C fund-raising, Kinnevik, Konga’s initial investor, decided to lower the valuation of its participation in Konga down from SEK405 million ($48 million) to SEK103 million ($12 million) due to developments relative to Nigeria’s currency and market environment.
Only 3 months after this news, Jumia announced its new funding round at $325 million bringing its valuation up to $1 billion while Nigeria was at the time Jumia’s largest market. The main reason why, at the same moment, Jumia managed to close a glorious up-round while Konga got his valuation divided by 4, is that Jumia was already present in 23 countries. Of course, Jumia was also suffering Nigeria’s current situation but also leveraging on other countries showing better performance at the moment such as Kenya, Morocco and Ivory Coast. Jumia decided to position itself from the beginning as a regional leader, it paid-off.
Strategic investors vs purely financial investors
During its development, Jumia had the chance to bring on board both financial and strategic investors operating in the same countries. Over the years, this has proven to be quite a strong asset given the focus on both side to build synergies and provide Jumia with more stability.
Orange, AXA, MTN investments in Jumia are not purely financial but also highly strategic. The three companies have a significant footprint in Africa and want to take part of the digitization of the continent. Jumia being one of the biggest players of this transformation, their investments give them a prime positioning to witness this change. They understand Africa, the fact that building e-commerce will be a long-term game and they are ready to accept temporary setbacks (for instance Nigerian and Egyptian tough economy context in 2015/2016). They are here for the long-run.
In addition to this, these strategic investors are locally involved with Jumia to build synergies. One example of this is Orange starting to sell mobile devices on Jumia and also helping Jumia acquire new customers in some countries enabling all Orange users to access for free the Jumia app. When in Africa, data is often so expensive, having access to the “zero-rate” offer from its Telco investor is a strong marketing argument for Jumia.
Over the year 2017, we also saw AXA insurance products specially designed for e-commerce appearing on Jumia (smartphone insurances for instance).
Rocket Internet’s know how
Even though through the different funding rounds, Rocket Internet’s participation in Jumia was diluted down to 28%, it’s culture of execution is still very present. The Rocket Internet’s unique functioning (building at the same time similar businesses in different countries) enabled it to acquire very fast a knowledge few ever had: knowing how to build faster than anyone internet companies in emerging economies. Especially at the beginning, Jumia was able to benefit from it, leverage on it to recruit top talents and transmit this culture of high speed and quality execution.
Access to capital
Back to the “who came first, the egg or the chicken?” question. Of course access to capital and being able to finance its operations over the coming several years is a massive advantage for Jumia. But this ability to raise capital also came based on the conviction by its investors that it was worth this investment.
Building e-commerce in Africa will take time and investments, everybody knows it, it is a long term game, a marathon. In this context, access to capital is decisive to be able to play.
Here Konga also showed a strong capacity to convince both its investors Kinnevik and Naspers who invested each $35 million and $67 million between 2012 and 2015.This is a real success and place them on the podium of the largest African VC rounds. However, since its last investments in 2015, Konga didn’t communicate on any new cash injection.
On its side, Jumia also showed its great ability to bring on board strong investors, this was re-affirmed with the 2016’s record-breaking €425 funding round.
In Conclusion, building an ecosystem, securing a geographical diversification, leveraging on its strategic investors and having secured consequent access to capital is according to me what explains the huge difference between the current valuations of two biggest e-commerce players. Now, the accuracy of either nominal valuation is still to debate…