ContextLogic Stock Suffers as Platform Loses Users to Pandemic Aftermath

ContextLogic (NASDAQ:WISH) has seen better days. The company operates Wish, an online e-commerce platform focused on budget-conscious consumers. Due to its niche focus and the coronavirus pandemic, the application did very well last year. However, with the pandemic under control, things are getting tougher for the company. As a result, WISH stock is suffering.

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

Going into the third-quarter results, the shares were down 72% for the year. Investors had hoped that the news would help in reversing course. However, there is nothing special in the earnings report.

To be sure, the numbers are not apocalyptic by any means. Nevertheless, the poor revenue outlook for Q4, a decrease in sales and a CEO change are red flags.

Investors were not pleased judging by the market’s knee-jerk reaction to earnings, driven by fears of how the company will do amidst a change in CEO.

Understandably, it isn’t the best time for a WISH stockholder. However, on the flip side, the stock is trading close to its 52-week low of $4.61. WISH stock seems to have bottomed out and found support near $5, meaning it could be in the early stages of an upward trend.

Nothing to Write Home About

SKLZ stock investors were mildly disappointed with the Q3 earnings. Mildly, because while that were not that good, they weren’t disastrous, either.

The company reported a loss per share of 5 cents on revenue that fell short by $5.9 million of consensus estimates. It should come as no surprise. People are venturing out after a year of being cooped up in their homes. There doesn’t seem to be the same impetus in online purchasing. Even the bigger brands like Amazon (NASDAQ:AMZN) are suffering from tough year-over-year comps.

The company announced that it is looking to hire a new CEO, with Piotr Szulczewski stepping down by February. However, he’s not going far. The former head executive will remain on the board as an advisor to help recruit for his replacement.

The move could not come at a worse time. The company is navigating a tough transition period. Lack of clarity in the decision-making process could be disastrous.

Meanwhile, the company’s cash balance has been shrinking quickly. With nearly $345 million spent on marketing out of $900 million in revenue year-to-date, things are looking tough. Revenues fell 39% from the year-ago period, mainly because of social reopenings and reducing ad spending.

The core marketplace was 55% lower than last seasonally adjusted quarter with no ad spend growth because of market conditions.

ContextLogic is stuck between a rock and a hard place. On the one hand, it does not want to spend a lot of money on advertising expenses and neglect product quality issues. However, it cannot afford to take its foot off the gas at this stage of the game.

The Worst Is Yet to Come

Unfortunately, WISH stock holders should expect next quarter to be worse than Q3. The company reported that through October of this year there has been a 20% sequential decline in sales and they don’t expect it will get any better by Christmas.

The truth is the Wish platform has become more of a ghost town. ContextLogic’s MAUs, or monthly active users, decreased from 90 million in the second quarter to only 60 million in the latest quarter, while there are far fewer active buyers,  46 million from 52 million in the comparable period.

Coming out of the pandemic has weakened the market, which means that people are spending less time online. This is evidenced by ContextLogic’s trends in revenue and user growth over recent quarters. The supply chain crisis could set back their business substantially during the Christmas season when people look forward to shopping online.

Also, do not forget the impact on Black Friday sales which happen every November or December depending upon where you live (some countries start earlier). The only positive catalyst for this company would be an increase in monthly active users, but they’re losing too many customers already — that doesn’t suggest anything near term that could drive the stock upward.

Best to Stay Away from WISH Stock

WISH stock has been on a downward trend for some time now. Though they have taken steps to combat this by making changes in product quality and finding new ways of growing margins, pressure from their platform will only increase as the company tries to expand into new markets. That will lead to many investors betting against the company, finding solace in stable performers like Amazon instead.

The ContextLogic earnings card did not instill confidence in the markets. And it is time to worry.

MAU numbers are persistently declining, showing that the company’s biggest challenge will likely continue being shoppers leaving their platform post-pandemic despite efforts by management. However, considering shares have shed billions in market value, there is some upside to exploit here.

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/2021/11/contextlogic-stock-suffers-as-platform-loses-users-to-pandemic-aftermath/.

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