Will mobile commerce company ContextLogic (NASDAQ:WISH) be a short-squeeze target of the Reddit crowd? That’s a question on the minds of some WISH stock traders.
It’s a legitimate question, as meme stocks have been known to shoot up 100% or more. On the other hand, in many instances, they’ve fallen almost as fast as they ascended.
Perhaps there are other reasons to consider a position in WISH stock. In particular, the company appears to be successfully tapping into a vast addressable market.
When we drill down to ContextLogic’s financial stats, you might be motivated to look beyond the memes and see the company’s real value.
A Closer Look at WISH Stock
The ContextLogic initial public offering (IPO) was fairly recent. After establishing a price range of $22 to $24 for the IPO, ContextLogic raised an impressive $1.1 billion by selling 46 million shares of WISH stock at $24 apiece on Dec. 15.
However, the public debut was a flop. Thus, on Dec. 16, ContextLogic shares opened for trading at $22.75, fell to a low of $19.48 and then closed out the session at $20.05 for a 16.5% loss.
2021 started out pretty well, though, as WISH stock climbed to a 52-week high of $32.85 on Jan. 28.
Unfortunately, that rally wasn’t sustainable, and the stock drifted downward over the ensuing months, landing at $11.40 on June 18.
At the same time, ContextLogic had trailing-12-month earnings per share of -$3.16. Hopefully, the company will be able to turn that number positive at some point this year.
Getting to the Core
Shoppers on multiple continents can purchase a wide variety of products online through the Wish platform.
This is central to ContextLogic’s business model and particularly the Core Marketplace segment.
Evidently, this segment is in rapid expansion mode. As ContextLogic reports, the Core Marketplace segment’s first-quarter 2021 revenues increased by a whopping 40% year-over-year.
This is part of an even brighter big picture, as ContextLogic total revenues for 2021’s first quarter indicated a 75% year-over-year improvement.
But getting back to the Core Marketplace segment, in a shareholder letter, the company attributes the segment’s recent growth to a number of factors:
- Better monetization
- Lower refunds
- “Lapping the initial impact of Covid-19 during Q1 2020”
- 48% year-over-year increase in Core Marketplace revenues from Europe and North America
I’m willing to overlook the odd phrasing of “lapping the initial impact” as the quarterly numbers pretty much speak for themselves.
In the interest of full disclosure, ContextLogic did observe a year-over-year decline in its South American Core Marketplace revenues. So, there’s always room for improvement.
Muted Expectations
The markets are generally forward-looking, so let’s see what ContextLogic expects for its second-quarter 2021 results.
It appears that the company is modeling total revenues in the range of $715 million to $730 million. That would represent year-over-year growth between 2% and 4%.
Okay, so that’s not exactly mind-blowing. Some folks might even consider this outlook to be a disappointment. Still, Wish Founder and CEO Piotr Szulczewski seems to have a sensible plan.
“Our primary focus is to drive continued long-term growth through efficient user acquisition, increased monetization and higher retention,” Szulczewski explains.
Fair enough. After a blockbuster quarter, ContextLogic shouldn’t be expected to continue growing at the same pace indefinitely.
And if the company can continue to drive revenues through its Core Marketplace segment, then the stakeholders should be optimistic but also patient.
The Bottom Line on WISH Stock
“As the worldwide economy continues to recover, we are pleased by the robust demand we are seeing on the Wish app,” Szulczewski commented.
Thus, informed investors should view WISH stock as a recovery trade, not just as a meme stock.
Maybe the Reddit crowd will push it to higher price points. Or, maybe they won’t.
It’s better to look beyond all of that and concentrate on the value that ContextLogic has to offer as a rapidly expanding global e-commerce business.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
