Saved by the bell!
Swvl lives to fight another day on Nasdaq
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Saved by the bell!
There are a few similarities between one-time e-commerce darling, Jumia, and the Egyptian tech-enabled mass transit company, Swvl. Both companies were once investor darlings, became unicorns, and have struggled since their IPOs. Both companies now have similar market capitalizations: $493 million for Swvl and $402 million for Jumia. They also have the same existential problem, albeit with one closer to the edge than the other. As they're both listed on Nasdaq, they risk being delisted if their share prices stay below $1 for an extended period.
Jumia, trading at $4.06, still has some wiggle room. Swvl, which traded at $0.16 a few weeks ago, had begun having strategic conversations on the way forward. This week, the board implemented a reverse stock split. Their press release gives a boring version summary: "The Company's Board of Directors approved a reverse stock split of its Class A ordinary shares…such that every 25 issued Ordinary Shares would be combined into one Ordinary Share, with a par value of $0.0025 each."
But here's a simple version: In Swvl's one-for-twenty-five (1:25) reverse stock split, shareholders will receive one share of the company's new stock for every 25 shares they own. In other words, a shareholder holding 1,000 shares would end up with 40 after the reverse stock split was complete.
Swvl's share price jumped to around $4 when the split was announced. It helps to remember that because the number of shares has been reduced as I explained in the previous paragraph, the increase in share price is only artificial. It will not improve the company's market capitalisation, and the value of the stock in the hands of shareholders stays the same. Long and short, this was only a move to avoid being delisted by Nasdaq.
The root problem remains that Swvl's business model needs to be revised and that investors need to trust the company to turn things around at this time. There's a Jumia tie-in here, although the African e-commerce giant remains safe. Yet, there will be questions about its future when Q4 2022 results are announced. With a liquidity position of $104 million, Jumia no longer has the luxury of losing $40 million per quarter–it has to trim those losses by Q1.
The elephant in the room is when the company will hire new leadership and if the interim CEO stays on. For now, we can only wait for their earnings call and remain secure in the knowledge that there are still short-term solutions to avoid Nasdaq's hammer. We don't know how both companies will fix their quarterly losses and show that their respective business models can work.
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Where do African crypto startups go from here?
This week, I wrote about a question that had been on my mind for a few months: where do African crypto startups and creators go from here? And by "here," I refer to the lack of trust that followed the implosion of FTX. In Nigeria, the collapse of FTX was a huge deal when you consider that anyone born yesterday will tell you how this is a low-trust society. What happens when you break the fragile trust in a society like ours?
Here's an excerpt from Techcrunch's report last year: "to many crypto companies and retail customers, FTX acted as a bank, offering an 8% annual interest rate on the stablecoin stored on the platform. It was the perfect marketing required to onboard several customers in Africa and challenge Binance, the world's largest crypto exchange by volume, for market share. Before its demise, FTX managed to acquire over 100,000 customers in Africa."
But it gets worse. "TechCrunch learned about retail customers who had various amounts of money locked up on FTX, ranging from $7,000 saved up for a World Cup trip to a celebrity who lost "millions of naira," and a trader who had $2 million on FTX before the Sequoia-backed crypto platform imploded."
Layoffs within the sector followed these losses as Quidax, Nestcoin and Lazerpay cut jobs. This week, the Africa-focused company, Luno also laid off over 300 people. It keeps looking grim. Everyone I talk to points out that crypto has had worse lows and will recover. While I don't doubt price recovery is possible, how will crypto startups regain trust in Nigeria? Yep, that's me leaving you with a question to start your weekend.
An Emefiele Throwaway
In yet another sign that Nigeria is the comedic gift that keeps giving, the CBN governor, whom the DSS supposedly wanted, chaired this week's MPC meeting. Despite a team of economists telling Bloomberg that the CBN would not raise rates, the Central Bank did the opposite, continuing its bullish response to inflation.
This week, Emefiele is again at risk of being arrested after ignoring a summons from the National Assembly. This time, the accusations are not as grievous as terror financing; instead, the National Assembly is trying to prevail on him to extend the deadline for turning in N500 and N1000 notes. The deadline remains January 31, even though no one can find the newly designed notes anywhere.
What will happen to POS agents holding all of that old cash, and who can't get the new ones from banks? I predict that the CBN will extend the deadline and that Emefiele is only playing hardball as he often does before letting reason prevail.
What I've been reading:
I enjoyed this article on why every fintech is gravitating to payments and international transfers and all of the other opportunities that founder can look into instead.
As expected, my article on crypto startups and creators
I thought Chidi Mokeme was exceptional in Shanty Town, so it was fascinating to see this review that echoed many of my thoughts on the movie
An image worth paying attention to:
See you on Sunday! (I mean it this time)