The 82 percent slump in the valuation of Lagos-based e-commerce company, Konga, to $35 million from as high as $200 million, particularly stands out after an outright acquisition by Zinox, an integrated Information Communication Technology (ICT) solutions conglomerate.
The 81 percent naira devaluation against the US dollar offers perhaps the best possible explanation for Konga’s valuation slide, having shrunk a similar magnitude (81 percent to N360 per US dollar from N199 per dollar pre June 2016).
The Naira devaluation, which at the time marked an end to a long standing battle by the Central bank of Africa’s largest oil producer to defend the naira against all odds, was sparked by acute foreign exchange shortages brought on by declining oil prices and production, as well as a slump in foreign investment inflows.
The naira rout not only unsettled Konga, but other e-commerce players in Nigeria, even as the economic slowdown in the country took its toll.
E-commerce platform, Jumia Group reported a net loss of USD$118 million in 2016, after a 41 percent slump in revenue to $USD 89 million.
German-based technology firm and owner of Jumia, Rocket Internet alluded in a statement at the time, that revenues had been battered by an economic slowdown and currency devaluation in its biggest market, Nigeria.
“Revenue decreased due to the continuing shift from e-commerce towards a marketplace business model, by the slowdown of the Nigerian economy and currency devaluations in June 2016,” Rocket Internet said in a statement April 2017.
Nigeria may now be out of economic recession, but it shrank five straight quarters between the first quarters of 2016 and 2017, according to data provided by state-run data agency, National Bureau of Statistics.
Last year alone, Nigeria’s largest airline- Arik, tier-two lender- Skye bank and telecommunications company- Etisalat (now 9 mobile), were all victims of the naira rout and were either rescued by the government (in the case of Skye bank and Arik) or sold on to new private investors (9 mobile).
Konga, one of the first e-commerce companies in Nigeria, came into the market in 2012 with $3.5 million in seed investment, according to its annual reports.
Riding on first mover advantage in Nigeria’s e-commerce space, with only one other competition – Jumia, Konga got a $17.5 million investment from Kinnevik for 46 percent equity while Naspers acquired 25.5 percent of Konga for $9.7 million.
The financial record of the company shows that it raised about $27.2 million from its two major investors within a year of operation and was valued at no less than $38 million.
Online reports suggest that Kinnevik and Naspers invested some more money into the company in 2014, as e-commerce started to gain momentum in Nigeria.
However, Konga’s value was immediately corrected by its investor Kinnevik, down from about $200million to $35million on the back of the naira devaluation.
This was only a few months after Konga had succeeded in raising $40 million from Naspers in a series C raising and had been valued at about $200million.
Naspers was reported to have regretted this move when in 2016 it admitted that it “recognised impairment losses of $53million relating to Konga”.
In the same year it was revealed that Konga had only about 184,000 active customers, that’s less than one percent of Nigeria’s 190 million people.
Kinnevik decided to lower the valuation of its participation in Konga down from $48m to $12m due to developments relative to Nigeria’s currency and market environment, only 8 months after its series C funding and that was the beginning of a down-hill movement for Konga.
‘The mistake that Konga made was depending solely on its e-commerce business in Nigeria where there is so much instability. Its competitor, Jumia, was wise enough to augment shortfalls from e-commerce in Nigeria with its other operations in the country and from 23 other countries where it operates,’ Subomi Sodipo, CEO, CFmobile told BusinessDay.
On the other hand, Jumia had raised 425 million Euros from AXA, Goldman Sachs, Orange and CDC, at a $1billion valuation in 2016. This was the largest venture capital round ever done in Africa.
According to Bastien Moreau, Former MD for Rocket Internet’s Jumia Group and CEO for Morocco, ‘the main reason why Jumia managed to close a glorious up-round while Konga got its valuation divided by four, is that Jumia was already present in 23 countries, where it leveraged better performance in markets such as Kenya, Morroco and Ivory Coast at the time and had several other subsidiaries such as Hello food (food delivery service), Lamudi (website for housing), Carmudi (Cars), Everjobs and Kaymu which was created as a C2C integrated market place but was merged last year.
It is no surprise then that Zinox Group which recently acquired Konga, is thinking of expanding Konga’s operations to other parts of Africa.
‘Since its last investments in 2015, Konga did not communicate on any other new cash injection,’ Moreau said in a recent article on “why Konga is worth $35m and Jumia is worth $1billion.” This is of course until the announcement of acquisition of the company by Zinox on Friday February 2, 2018.
BusinessDay reported in December 2017 that Konga.com laid off about 60 percent of its workforce on November 30, 2017; right after the company put a stop to its payment on delivery option.
Shola Adekoya, CEO of Konga at the time said the company was adopting ‘a leaner business model’ after the company, in July 2016 announced that it will be cutting down on its staff strength.