With Slowing Growth and Mounting Losses, Give ContextLogic a Pass

ContextLogic(NASDAQ:WISH), which owns and operates the Wish discount e-commerce site has multiple problems that make WISH stock a sell for now. However, I think the company and its niche are somewhat promising, so the shares could be worth buying at some point in the future.

The logo and information for the Wish (WISH) mobile app are displayed on a smartphone.

Source: sdx15 / Shutterstock.com

In addition to slowing growth, eroding profitability, and reported logistical difficulties, WISH stock has a high market capitalization and the headwind of a likely slowdown of the entire e-commerce sector.

In 2018, Wish’s revenue jumped 56% to $1.71 billion. Since then, the company has not come close to matching that growth. In 2019, its sales increased an anemic 10%. In the first three quarters of this year, its sales climbed 32% YOY.

In 2019, the company’s operating loss came in at $144 million, down from $223 million a year earlier. But in the initial three quarters of 2020, its operating loss soared 500% to $120 million, versus the same period a year earlier.

Clearly, Wish’s financial results, for the most part, have deteriorated in recent years, even though global demand for e-commerce was quite strong for much of last year.

Problems for WISH Stock and Ecommerce

Wish’s low-cost products, many of which are made in China, sometimes reportedly take months to arrive at their destinations, and occasionally products aren’t received at all.

Meanwhile, a July post-rate hike for shipments between China and the U.S. has likely been hurting the company’s bottom line. Nor do Wish’s products, which one analyst called “random tchotchkes,” sound like high-quality offerings.

As I noted in a previous column, people who have been cooped up at home will begin returning to the outside world as the vaccine rolls out.

That phenomenon, at least for several months, could stunt e-commerce growth. Consumers who turned to e-commerce as a source of entertainment during the pandemic very well may embrace the opportunity to visit brick-and-mortar stores again. Some third-and-fourth tier e-commerce websites like Wish could be hit especially hard by such a trend.

A Better ECommerce Alternative

One of Wish.com’s competitors, Overstock.com (NASDAQ:OSTK) is highly leveraged to the housing-sector and furniture boom, and a much better e-commerce play. Adding to my optimism is the fact that the company reported much stronger-than-expected Q3 results.

In fact, its revenue soared 110% YOY and came in $146 million ahead of analysts’ average outlook, while it reported  EPS of 50 cents, versus the mean estimate of a 6 cent per share loss.

And although Overstock said that it was having trouble meeting high consumer demand, I haven’t seen any evidence that it has the type of major fulfillment difficulties with which Wish has apparently been contending.

Overstock’s revenue is only not very far below Wish’s and it’s much more profitable than Wish, Nonetheless, Overstock’s market capitalization is $2.23 billion, versus  $13.4 billion for Wish.

As a result, there’s no doubt that Overstock is a much better buy than Wish at this point.

The Bottom Line on WISH Stock

ContextLogic’s efforts to, as others have suggested, become the dollar store of the internet could eventually bear fruit.

After all, the dollar stores have been very successful in the brick-and mortar world, so why shouldn’t such an online enterprise work as well?

Additionally, Wish’s concept of making online shopping more mobile device-friendly and more like brick-and-mortar shopping by eliminating the search function and replacing it with a browsing process could be highly appealing to some customers.

Nevertheless, before WISH stock can become attractive, the company’s growth and profitability have to become more consistent. The shares would also look more appealing, of course, if ContextLogic can fix its fulfillment issues and sell more high-quality items. A meaningful decline of the stock would also help make it more attractive.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

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