ContextLogic (NASDAQ:WISH) bears are ruling the roost. Shares of the e-commerce platform have fallen 56% in the last three months. The latest quarterly results softened investor sentiment for WISH stock.
Unfortunately, the e-commerce company has said the upcoming quarter would be even worse, considering the economy is opening up and people are visiting physical stores at a higher frequency.
ContextLogic’s future revenue growth outlook is dependent on its ability to deal with product quality issues that have hurt user retention metrics and reputation. If WISH manages to resolve these issues, the stock should become a solid, long-term investment. But as it stands now, there is concern these problems might resurface again soon after a brief period.
For a company that has seen such significant share price correction in the past couple of months, it is natural to lean toward thinking WISH’s stock might be undervalued. However, as we know from the recent earnings report and what happened after those numbers came out, one needs to temper that excitement. Still, the stock is a steal at current levels.
Results Sour WISH Stock Interest
In the second quarter of 2021, the online retailer reported sales of $656 million, down 6% year over year. Wish reported a loss of $67 million on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to a profit last year. Revenue missed expectations while its bottom line was also less than projected figures.
Markets did not react favorably to the latest figures, considering the previous quarter saw a 75% revenue surge, handily beating analyst estimates. But now that countries are getting a better grip on the Covid-19 situation, companies like WISH see a sharp drop in usage.
Another major contributing factor was the decrease in total marketing spend. Although WISH has become popular among budget-conscious consumers, it is still not a household name. Plus, the platform does not offer branded products, meaning there is limited recall value. Under these circumstances, the pullback in marketing costs needs reevaluation from the management.
There are some silver linings, though. For one thing, the company’s logistics division is doing very well. Merchants can use the platform to sell and deliver products to international customers affordably and reliably. The segment has grown 126% to $228 million. Moving forward, this is an incredibly important growth area for the company.
Overall, the results were fairly muted. Looking ahead, WISH is projecting an adjusted EBITDA loss in the third quarter of $65 million to $70 million. Due to the decreased marketing spend and people returning to brick-and-mortar stores, ContextLogic does not expect meaningful growth until the second half of 2022.
Why You Should Remain Interested in WISH Stock
The main reason to remain interested in WISH is its business model. One of the least-serviced areas in the digital space is the low-income consumer. Millennials are less brand-conscious than previous generations, and they also have less money. Considering these factors, they are much more likely to opt for outlets such as ContextLogic.
Wish’s revenue per buyer jumped by an incredible 21% year-on-year in the latest quarter. That shows users of the app are spending more time and money on the app. If the company can ensure quality control, then it has a solid user base it can build on.
In its latest earnings call, the company echoed this sentiment. It highlighted the need to enhance its application and optimize the user experience. However, it will take time to design and then execute a strategy to accomplish this task.
Trading at a Deep Discount
If you are a WISH stock bull, then it’s the right time to purchase more of the stock. The business model still instills confidence, and shares are trading at a historical discount, just pennies off their 52-week low of $5.26 a piece.
However, you have to take a long-term view. Upgrades will take time and with the economy reopening, sales are expected to be muted in the coming quarters. Considering these factors, WISH stock may not entice those looking to trade for short-term gains.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.