Is ContextLogic a sub-$2 buy?


Currently trading at $1.54, popular mobile e-commerce platform ContextLogic (WISH) has seen its shares tumble over the past month due to investor pessimism over the company’s unimpressive first-quarter performance. And given that WISH continues to face multiple short-term headwinds, is it worth betting on the stock at its current price level? Let’s find out.


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San Francisco-based mobile online e-commerce company ContextLogic Inc. (WISH) operates the Wish e-commerce platform, which offers marketplace and logistics services to merchants. Shares of WISH have fallen 24.9% in the past month and 52.2% since the start of the year, due to the company’s disappointing first-quarter results and continued headwinds in its business in due to reduced user retention and conversion of new buyers. Additionally, the company suffered significant operating losses due to increased advertising costs and brand development expenses.

Closing its last session at $1.54, the stock is trading 89.9% below its 52-week high at $15.18. With global supply chain issues weighing heavily on active buyers and the e-commerce player’s revenue outlook, the stock could face another setback in the coming days.

While WISH has been working to ramp up publicity and launch new initiatives, including the launch of a women’s fashion category, we believe the company’s growing reliance on Chinese merchants as continues to struggle with quality issues may have investors worried about the stock.

Here is what could influence the performance of WISH in the short term:

Facing the challenges

The number of monthly active users of the online mobile shopping platform operator decreased by nearly 73% in the first quarter ended March 31, 2022, compared to the first quarter ended March 31, 2021. In addition, its active LTM buyers are down about 54% year-over-year. -year. This could be mainly attributed to reduced digital advertising spend and a substantial drop in conversion.

Additionally, last year, French regulators ordered search engines and online platforms to remove WISH from their listings due to product safety concerns. As the company continues to struggle with quality issues and shipping issues that disrupt the delivery of products from its merchants to its users, the popular e-commerce site’s stock could take a hit.

Disappointing finances

WISH total revenue was $189 million for the first quarter ended March 31, 2022, down 76% year-over-year. Its core market revenues decreased by 81%, while its logistics revenues decreased by 65%. Additionally, its operating loss was $62 million for the quarter, while its net loss was $60 million. The company’s cash flow from operating activities was negative $146 million, while its free cash flow was negative $148 million. Additionally, WISH reported negative Adjusted EBITDA of $40 million and its Adjusted EBITDA margin was minus 21%.

The company’s trailing 12-month ROTC, ROE, and ROA are negative at 19.8%, 34.8%, and 26.1%, respectively. Additionally, its net income margin and EBITDA margin are negative at 19.5% and 17.9%, respectively.

Low growth expectation

Analysts expect WISH’s revenue to be $887.03 million in its 2022 fiscal year, indicating a 57.5% year-over-year decline. Moreover, its EPS is expected to remain negative this year and next year. Additionally, the negative consensus EPS estimate of $0.17 indicates a decline of 70% from its value a year ago. And its EPS is expected to decline 7% year-over-year in the current year to negative $0.61.

POWR ratings reflect bleak outlook

WISH has an overall D rating, which translates to Sell in our POWR rating system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight distinct categories. WISH has a C rating for quality. This reflects the negative ROE, ROA and ROTC of the stock.

In terms of sentiment rating, the company has a D, reflecting bearish sentiment from analysts surrounding the stock. Also, it has an F rating for stability.

Beyond the ratings I’ve highlighted, you can check out additional WISH ratings for value, growth, and momentum here. Among the 71 F-rated stocks in the Internet industry, WISH is ranked No. 53.

Conclusion

In its recently released SEC filing, the mobile e-commerce operator said it expects operating losses to continue for the foreseeable future as it incurs development-related costs and expenses. of its brand. In fact, the company’s poor financial health and a decline in user retention and conversion could negatively impact its growth. In addition, headwinds related to supply chain disruptions and quality issues and their impact on the company’s business have raised concerns among investors regarding the stock. So we think it’s better to avoid it now.

How does ContextLogic (WISH) compare to its peers?

Although WISH has an overall D (Sell) rating in our proprietary rating system, you might consider taking a look at its industry counterpart, Yelp Inc. (YELP), which has an A (Buy) rating. strong).

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WISH shares fell $1.54 (-100.00%) in premarket trading on Monday. Year-to-date, WISH is down -50.48%, compared to a -15.16% rise in the benchmark S&P 500 over the same period.


About the Author: Imon Ghosh

Imon is a financial analyst and journalist with a passion for financial research and writing. She started her career at Kantar IMRB, a leading market research and consumer advisory organization.

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