ContextLogic (NASDAQ:WISH) had been flying high during the pandemic, with the monumental success of its discovery-focused shopping app, Wish. However, with the tailwinds fading away, monthly active user (MAU) growth has stalled, weighing on the share price. WISH stock is down 79% from its IPO and could be uninvestable if things don’t improve drastically with its underlying business.
ContextLogic went public back in December with an IPO value of $24 per share. WISH stock built up a decent head of steam up until February, gaining over 32% in value. Since then, the stock has lost over 70% of its value.
Business has been rough, especially with the pandemic playing a significantly less role in pushing its results. The going is likely to be tough for the company, and if it continues on this path, the stock will continue to lose more value.
Steep Drop In MAUs
Wish was the third-most downloaded app last year amid the pandemic. The company generated $2.5 billion in revenues last year, with 107 million monthly active users (MAUs). However, all that has changed in the past few quarters, as the world looks to get back to normal.
MAUs dropped to 90 million by the second quarter, indicating a 16% drop from last year. The year-over-year decrease is even higher in the second quarter at 22%. Moreover, the number of active buyers dropped to 52 million, declining by 26% from the prior year’s quarter. Naturally, with the easing of Covid-19 restrictions, e-commerce growth has slowed down.
Furthermore, in the second quarter, the company saw a substantial 32% drop in sales in its core marketplace segment to $378 million in revenues. However, its paid advertising and logistics division witnessed a healthy revenue increase on a year-over-year basis.
What complicates things further is that ContextLogic isn’t profitable at this stage, which means that the decline in user and revenue growth rates will create higher margin pressure.
Its profitability situation is largely dependent upon MAU trends, which are unlikely to reverse anytime soon. On revenues of $656 million, the company lost $111 million during the second quarter. This equates to a negative margin of 17%. If the platform growth doesn’t return soon, it will most certainly run into cash flow problems.
Can WISH Stock Make A Comeback?
WISH stock is trading at roughly 1.5 times forward sales and may seem cheap to some investors. However, the more established e-commerce players have better multiples. Alibaba (NYSE:BABA) and Amazon (NASDAQ:AMZN) trade at 2.8x and 3.5x forward sales, respectively. Moreover, both companies are profitable and have established themselves as the Apex predators in the sector.
For instance, AliExpress surpassed 150 million buyers a few years ago and is significantly larger than Wish today. Moreover, ContextLogic’s 52 million active buyers are scattered across several different countries. This fragmentation makes it extremely difficult for the company to challenge regional giants such as MercadoLibre (NASDAQ:MELI) and Sea Limited’s (NYSE:SE) Shopee.
The company’s revenue growth has been declining as its business model is losing its luster. The idea of purchasing low-priced goods from China isn’t attractive anymore. Moreover, there have been accusations of the company’s vendors selling counterfeit, illegal, and dangerous products in the past. Hence, these challenges will continue to hamper near-term growth and have a negative impact on WISH stock.
The Bottom Line on WISH Stock
WISH stock has shed a colossal amount of its value since its IPO back in December. Its top-line growth has slowed down as the pandemic-led tailwinds are subsiding fast. Hence, MAU growth is a major point of concern and will impact its business direction.
With the uncertainty surrounding ContextLogic, it’s best to avoid WISH Stock at this time.
On the date of publication, Muslim 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.