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ContextLogic Stock Isn’t a Bad Speculative Buy, But It’s Still a Risky One

It’s fair to say that ContextLogic (NASDAQ:WISH) stock has been a bust so far.

The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.
Source: sdx15 / Shutterstock.com

The high-speed e-commerce train keeps chugging along, albeit at a slower pace.

The supply chain issues hurting other industries are having an identical impact on the biggest technology conglomerates in the world. A

gainst this backdrop, it should come as no surprise that online e-commerce platform for budget consumers, ContextLogic is struggling. WISH stock is changing hands for around $5.20 apiece, which puts it dangerously close to the penny stock category. To put things in perspective, the company went public in December 2020 at $24 per share.

Of course, there were a few things that made the perfect storm for this one. ContextLogic’s platform has faced certain product quality issues. Although it is marketed as a budget retailer, low-quality products will not win over fans and reduce the churn rate.

On a separate note, the company is changing its strategy. It is spending less on advertising and directing those funds toward operational improvements.

Although ContextLogic did very well last year, it is not as well known as Amazon (NASDAQ:AMZN) or eBay (NASDAQ:EBAY) just yet. To continue building brand awareness, the company will have to keep spending cash. However, pulling back in this area will undoubtedly hurt in the short term.

Finally, the company is suffering from tough year-on-year comparisons. Last year, the whole world was under lockdown.

With people less likely to visit the company’s platform to make purchases,  the number of transactions and users naturally will fall. That is something not under ContextLogic’s control, but it is still having a massive effect on the bottom line.

Having said all of this, considering the steep drop, there is merit to treating this as a contrarian play.

Every Cloud Has a Silver Lining

ContextLogic owns WISH.com, one of the largest e-commerce platforms in the world. For the full year 2020, monthly active users (MAUs) jumped 19% over the year-ago period to over 107 million.

Revenues rose 31 percent increase year-on-year to finish at $2.5 billion. Wish became a tour de force last year with more than 100 million monthly active users and approximately 500 million registered users.

However, things have slowed down considerably in the latest quarter. Wish’s revenue for the second quarter of 2021 is down 6% from a year ago.

The company reported a loss of $67 million on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to profit during their previous fiscal period.

There is nothing here to be alarmed about. Due to the pandemic, people were more inclined towards purchasing items online. It’s only natural that now since restrictions are lifted, people are making the odd visit to the store to be around people again. Naturally, this will affect e-commerce companies.

Even companies like Amazon and Apple (NASDAQ:AAPL) are not immune. You also have to factor in the supply chain issues that are still plaguing these companies because of the pandemic.

PCs, smartphones and other devices are being held back by global shortages of shipping containers and semiconductors.

Meanwhile, Wish has decided to shift focus away from advertisements and customer acquisition towards strengthening internal processes to reach their full potential as a business. I have touched upon my issues with this strategy in earlier pieces. Without retreading old ground, hopefully, management will try and change their strategy regarding this area.

What Sets WISH Apart Is the Platform

Ultimately, ContextLogic’s future will be decided by the WISH.com platform. So far, recent product issues aside, it has done well with budget-conscious consumers.

In a world where 75% of WISH users have an income below $75,000 and the vast majority purchase through their mobile app, investors can rest easy.

The WISH App has a scrollable personalized feed tailored to your interests – it automatically finds content geared towards what you’re looking at or doing as you shop. With zero search queries accounting for 70% of their total sales revenue by 2020 (and growing), there isn’t anything else like them out there either on mobile devices or anywhere else online.

It is also evident from recent numbers that regular users are also spending more time on the app and spending more money as well. Maximizing average revenue per user (ARPU) is a key concern for every e-commerce enterprise out there. Despite the already impressive growth, WISH has a solid platform to build upon despite product quality issues.

WISH Stock Is Trading at an Enviable Discount

WISH stock has what it takes to mount a comeback. The global pandemic increased digital traffic to all-time highs. We are seeing numbers go back to normal with people using their devices less than normal.

With the growth of internet adoption and 5G connections, e-commerce will be on an upswing in the coming years. Considering several e-commerce enterprises are trading at high price multiples, WISH stock offers a much more affordable way to play this trend.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2021/10/wish-stock-isnt-a-bad-speculative-buy-but-its-still-a-risky-one/.

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