Sometimes when you buy an initial public offering (IPO) stock, it goes well. Other times, it’s disastrous. I hate to call mobile e-commerce company ContextLogic (NASDAQ:WISH) the poster child of post-IPO disaster, the near-62% decline since the WISH stock debut is undeniable.
ContextLogic is the parent company of Wish, where merchants can sell relatively cheap goods and shoppers all over the world can buy them. You’d think that this would be a terrific business model in a time when e-commerce is flourishing. Right?
Well, it’s not as simple as that. E-commerce is a crowded space nowadays. Plus, economies have reopened from the Covid-19 pandemic, and there are plenty of discount brick-and-mortar stores people can go to.
In the wake of dismal fiscal results, ContextLogic has received some negative coverage from Wall Street analysts. On the other hand, the company seems to have a plan to get itself on the right track, but this, I suspect, is little more than wishful thinking.
A Closer Look at WISH Stock
ContextLogic’s IPO was actually quite auspicious. It took place on Dec. 16, 2020, with the stock opening at $24.
The positive momentum persisted for a little while as WISH stock climbed to $32.85 on Feb. 1, 2021. That was — and unfortunately, still is — the stock’s 52-week high.
A multi-month decline ensued, with the ContextLogic share price sliding below the crucial $10 level in May. It closed yesterday at $6.98 a share.
At the same time, ContextLogic’s trailing 12-month earnings per share was -$2.36. That’s a hard pill to swallow when the share price is floating between $6 and $7.
Still, some contrarian traders might look at this situation and see a dip-buying opportunity.
However, it would be difficult to justify taking a long position in WISH stock without positive fiscal data — which is lacking at the moment.
Worse Than Expected
Not to be the bearer of bad news, but ContextLogic’s Q2 financial results simply didn’t meet Wall Street’s expectations.
Let’s start with the top line. Analysts surveyed by FactSet expected ContextLogic to post quarterly revenue of $722.9 million.
The actual result was $656 million. So, that’s a miss compared to what Wall Street expected, and also fell short of the $701 million reported in the year-ago quarter.
Now, we’ll move to the bottom line. The analyst community produced a consensus estimate of a GAAP net earnings loss of 13 cents per share.
Thus, Wall Street’s expectation wasn’t particularly optimistic. Nonetheless, ContextLogic missed even that by posting a loss of $111 million, or 18 cents per share.
Besides, that result was worse than the year-ago quarter’s earnings loss of 10 cents per share.
Two Downgrades and Lots of Promises
In light of those disappointing results, it shouldn’t be too surprising that some prominent analysts have downgraded ContextLogic.
For example, Cowen analyst John Blackledge downgraded WISH stock to “market perform” from “outperform” and slashed his 12-month price target to $10 from $18.
If you think that’s harsh, check this out. J.P. Morgan analyst Doug Anmuth downgraded ContextLogic from “overweight” to “underweight” — he didn’t even make a pit stop at “neutral.”
And get this: Anmuth slashed his price target to $5 from $17. Ouch!
To encourage the company’s stakeholders, ContextLogic promised to strengthen the quality and selection of products sold on the Wish platform.
Apparently, the company plans to do this by “adding more globally recognized brands and items that users know and search for.”
ContextLogic also committed to develop a more engaging shopping experience through “features such as video reviews and live streaming shopping events.”
In addition, the company intends to optimize the performance of the Wish app.
Yet, ContextLogic doesn’t “expect these new initiatives to contribute meaningfully to positive year-over-year results before the second half of 2022.”
The Bottom Line
So now, we have some context for ContextLogic’s problems, and some wishful thinking for the Wish platform.
Plus, we have a couple of harsh analyst downgrades and some promises which, admittedly, won’t likely yield meaningful results until late 2022.
If you’re not leaning bullish on WISH stock right now, I don’t blame you at all. To me at least, the company’s road map to success appears sketchy at best, and empty at worst.
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.
