Swedish investment company Kinnevik’s half year report for January to June 2016 has raised a couple of questions, particularly about one of its portfolio companies - Konga - which happens to be Nigeria’s largest online retailer.

According to Kinnevik’s report, its 34% stake in Konga is worth SEK 101 million. That’s about US$12 million at the current exchange rate. The report goes further to state that Konga has 184,000 active customers – that is customers who have bought from them in the last six months.

According to the report, when Kinnevik made its investment in Konga, the retailer had more active users and was worth SEK 44 million (US$5 million) more than it is today.

The conclusion from this is that Konga has been losing value even with additions such as me-commerce and KongaPay, meaning that Kinnevik's net asset value is down after investing a total of SEK 209 million in the company.

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If you do the math, you’ll see that only 1.1% of Nigeria’s 170 million population is using Konga - an absurd figure, considering that Konga spends an insane amount of money on advertising, and is considered the number one e-commerce site in Nigeria.

Entrepreneurs and tech enthusiasts have come up with different theories that may help explain what’s really going on. Some of these theories were properly discussed on a conference call session moderated by TechCabal’s Seyi Taylor, with Ope Adeoye, the Consumer & Mobile Services Product Manager at Interswitch, Raphael Afaedor, CEO of Supermart.ng, and AfricaMET’s Dayo Ogunyemi.

Here are some of the theories put forward:

First theory – Exaggerated Market Size

During the session, Afaedor noted that he thought that Internet penetration figures might be exaggerated in Nigeria and that numbers from reputable International companies were more believable.

“It’s easy to say 200,000 is too small but if you think about it, we’re actually introducing new technology (E-commerce) to the market. We say Nigeria has about 180 million people.
I have questions about the number because it sounds a bit too large to me. I tend to work with numbers that are more believable which is the one Facebook uses.

Also, saying that 100 million Nigerians are online and there’s 50% Internet penetration is the country seems a bit far-fetched to me. I feel like there’s a tendency to hype up some of these numbers.
Now, if we say there are 60 million Nigerians on Facebook, how many of them have purchasing power? Will they leave Facebook to go shopping online? Probably not.
Behaviour change takes time…

I do not feel anything alarming is happening. I think we need to put things in context. Amazon.com was built over 20 years. Alibaba.com was built over 16 years. It takes one thing to put new technology out there, it’s another thing to spend money to propagate it and it takes time for people to warm up to it. I think the fundamental question we should be asking why do people go shop online? …”

Second Theory – Devaluation of the Naira

Dayo Ogunyemi explained how market sizing and the Naira’s devaluation can affect consumer confidence, company’s performance and eventually company valuation.

“90% or more of the goods being sold on e-commerce sites are imports… If people are importing products are at $100, the consumer will end up being charged $100 plus a mark-up regardless of what’s happening with the Naira-Dollar rate, although some e-commerce sites find ways to work in discounts.”

Ope Adeoye also commented on how the crash of the Naira affects Konga's 2016 valuation by Kinnevick.

"The change in the value of the Naira has an impact of how a company’s valuation is seen… Technically, it may not be such bad news for Konga as a company that they’ve been marked down; it could be an effect of the current value of the Naira.”

Third theory – Window-Shop Online, Buy Offline

According to Alexa, 97.3% of Nigerians online visit Konga – that’s about 175 million Nigerians but Kinnevik’s says that Konga only has 184,000 active customers.

This indicates that many Nigerians may be going online to check out prices and product details on the e-commerce site at the point when they’re considering buying a product and then go offline to perform the action.

This also buttresses the fact that large social media following does not necessarily translate into a large consumer base considering that Konga has 127,000 followers on Twitter, over 1 million page likes on Facebook and over 50,000 followers on Instagram.

Fourth Theory – Bad User Experience

Many consumers come on blogs and social media to comment on bad experiences and unreasonable pricing on e-commerce sites like Konga.

Now, we all know how much people talk, word goes round and people read reviews or ask around before buying most things online. Let’s just say it takes a lot for a consumer with a bad online shopping experience to refer another to the same site.

Regardless of all these theories, one thing is for sure – eCommerce in Nigeria is still in its infancy, and companies like Konga that are still figuring things out in the space. The fact that even with a reported user base of 184,000 still leaves Konga valued at more than US$10 million says something about the potential of the company and the industry at large.

Kinnevik does have several other investments in Africa, including Rocket Internet and insurance service provider BIMA, so they're bound to know a good investment when they see one. Perhaps it's time we all had a look at all these statements to see just how much these companies are worth.

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