Skip ContextLogic as Its Revenue Continues to Decline

ContextLogic (NASDAQ:WISH) is set to announce its third-quarter earnings today under a new CFO. But there probably won’t be a lot to celebrate when the report is released. Ultimately, that means investing in WISH stock isn’t going to be worthwhile.

The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.

Source: sdx15 / Shutterstock.com

That said, ContextLogic will remain a popular choice for risk-tolerant retail investors, especially meme-stock traders and Reddit users. 

Of course, they’re welcome to do whatever they like with their money. But  I’d suggest avoiding ContextLogic at present, because the truth is the company isn’t growing. In fact, it’ll take some time for the company to turn around — if it does at all. 

The Backstory on WISH Stock

To put it bluntly, ContextLogic sells junk on its e-commerce platform, Wish. My colleague Josh Enomoto described it more on the grounds of its merchant base: “An e-commerce firm based in the U.S. but with a heavy merchant base in China, ContextLogic has from the start carried significant attention.”

As an avid golfer, I often watch videos to try and improve my skills. A few of the more popular videos mention Wish and are less than flattering. Essentially, content creators purchase knock-off clubs from Wish and hit them on their channels with less-than-spectacular results. 

Regarding its debut, WISH stock has only been publicly traded for less than a year. When it began trading at $20 per share, expectations were that it could live up to its billing as a young, up-and-coming e-commerce disruptor. 

The stock began trading in Q4 of 2020. Share prices appreciated for the first six weeks of its life as a publicly traded entity. But sentiment has since soured, and WISH stock has fallen from $30 to $5 over the last nine months. 

Investors shouldn’t expect ContextLogic to make any type of quick turnaround any time soon.

Weak Expectations for ContextLogic

Consensus expectations are that the company will post third-quarter revenue somewhere in the neighborhood of $353 million. As a publicly-traded entity, there is no context for those figures for the company. 

But make no mistake about it — those revenue figures are weak on a comparative basis. The company recorded $606 million in sales in Q3 of 2020 prior to going public. 

Thus, on a year-over-year basis, ContextLogic should see its revenue decrease by approximately 41.75% when all is said and done in Q3. 

That is exactly what investors should expect in Q4 as well. ContextLogic reached $794 million in sales in Q4 2020. Unfortunately, the company is expected to post somewhere in the range of $469 million of revenue in Q4 2021. 

That equates to another quarter in which sales figures decrease by more than 40%. It also makes it very difficult to see why WISH stock carries an average target price of $8.94.

Frankly, I wouldn’t put much stock into that number at all. Rather, I’d expect WISH share prices to drop for the next few months. That’s simply because there’s no fundamental reason for them to do the opposite. 

Further, if we simply take those Yahoo! Finance estimates at face value, next year also looks weak. ContextLogic is slated to record $2.22 billion in sales. That’s less than the $2.25 billion anticipated in 2021. 

What to Do With WISH Stock

If you want to chase WISH stock for its short-squeeze potential, that’s fine. It carries close to 18% short interest at present, so the possibility is there. I believe that’s not worthwhile, but that’s only an opinion. 

But other than that, I can’t see any realistic reason to justify investing in WISH stock. The fundamental case doesn’t require any further analysis aside from simply understanding where its revenues are projected to go: down. So there’s little reason to take interest until the company fundamentally changes.

On the date of publication, Alex Sirois 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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


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