Jumia, the pan African online retailer present in 14 countries, maybe put up for sale. The company’s owner, Rocket Internet, is reportedly seeking an IPO for the business with a listing of shares to the value of €200m ($246m).

Rocket Internet is reportedly seeking to release cash by exploring a stock market listing for Jumia, the online retailer it helped establish in 2012. Jumia has operations in 14 African countries, and currently has 500,000 merchants using the platform, and more than 5m SKUs. It also operates a hotel booking platform and an online food delivery service connecting consumers with local restaurants.

In the first nine months of 2017, Jumia saw its losses widen to €80.7m ($99.1m), while revenues were just €57.3m ($70.4m). To put this in context, Amazon launched in 1994, and first delivered a profit in Q4 2001, seven years later. It wouldn’t deliver a full year profit until 2004. Until 2016 it was still considered unusual that Amazon delivered four consecutive quarters of profit. Jumia’s group revenues mask the importance of one market: Lagos, Jumia’s first market and by far its single largest driver of revenues. The Nigerian market generally has seen sluggish growth since 2014, although it is picking up now, and slower growth in demand has been compounded by fragile market conditions in Algeria, South Africa, Kenya among others.

Emerging markets, but profitability will be a long time coming

Since 2014, Jumia has opened up a substantial number of new markets. In these market internet penetration is typically low, online payment usage by consumers is infrequent and rare, the logistics infrastructure is undeveloped and consumer spending is unpredictable and fragile. Many of its consumers are making a transition from purchasing in traditional channels to the internet. On that front, Jumia also faces a challenge from Facebook, which serves as a platform for informal trade.

Jumia is playing a long-term strategy of developing a large number of markets and attempting to take them to scale and profitability. It will continue to burn cash for at least a decade as it is effectively creating the internet retail landscape and infrastructure in its emerging markets. Unlike Amazon, which could attack the soft targets of established bookstores, record store and general merchandisers, Jumia is having to work much harder to drive topline business growth. Aside practical issues of limited consumer spend and low internet penetration, many consumers don’t trust online platforms.

As such, Jumia’s branch into takeaway food delivery actually operates as an effective marketing tool as well as a driver of growth. Target consumers are younger, wealthier and tech-savvy. Crucially the product is high demand (when consumers are hungry, they want to feed) but low-ish engagement and complexity (if there is an issue with the food it is a problem, but not nearly as much of a problem as a defective good that needs returning). A good way to break the barrier of trust.

Where next for Jumia?

The underlying question for investors is whether they trust Jumia’s long-term bet on dominating not just internet retail but modern general merchandise retailing in its 14 country markets. In early 2016, Jumia’s parent Africa Internet Group raised €225m ($276m) from investors, just weeks after French insurance company Axa purchased an 8% stake for €75m.

IPO investors will be purchasing less than 25% of Jumia’s shares, and have a limited say in the direction of the business. We believe that Jumia has opened up too many new markets although we note that it has a strong track record of execution. In particular, we question whether Jumia’s exposure in North African markets such as Algeria, Morocco, and Tunisia fits its wider focus on Sub-Saharan Africa. We also believe that Jumia may find trading in Uganda and Tanzania – both of which have been challenging markets for foreign supermarkets – too slow in the mid-term.

The IPO will further stress test Jumia’s market expansion programme. Does it matter if Jumia withdraws from or pauses in 4-5 of its expansion markets? Probably not, in reality. No other internet retailer is going to leap in and dominate trading, and bricks and mortar supermarkets are barely expanding.

It may end up being an acceptable compromise to allow investors to focus on developing core markets like Nigeria, Ghana, Egypt, Côte d’Ivoire and Kenya. We note, for example, that in 2016 Jumia’s CEO singled out the Democratic Republic of Congo for expansion, and to date, the company has not yet commenced operations. As strategic choices go, tactical pauses in smaller markets is a small price to pay.