ContextLogic Is Only a Buy at $2 if Changes Are Made

I’m not a fan of ContextLogic (NASDAQ:WISH). I’ve continually recommended readers remain skeptical about WISH stock. As for my $2 recommendation, that came in August as a last-resort suggestion:

“If you bought WISH stock in the teens, you better hope and pray that this logistics pivot works. If it doesn’t, I could see the stock going to $2 or lower in no time.”

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

At the time, WISH was trading around $7,116% higher than its current price of $3.24 and a 78% decrease from its 52-week high of $32.85 from February. If you bought at the highs, I sure hope you sold for a loss a long time ago. 

The way things are going, WISH could trade at $2 before Christmas. If it does, here’s what you need to know before placing what should be considered a very speculative bet.

WISH Stock and Its Logistics Play

InvestorPlace’s Alex Sirois recently discussed ContextLogic’s state of affairs. He described the company’s third-quarter 2021 results as woefully inadequate and nowhere near enough to suggest the company’s turnaround efforts are working.

I continue to focus my attention on ContextLogic’s logistics revenue. That’s where the business has a fighting chance of survival. As I wrote on Oct. 6:

“As it moves more of its revenue to its end-to-end logistics offerings — which typically aren’t nearly as profitable as apparel e-commerce — it will have to severely cut back its sales and marketing if it wants to make money. Until the company breaks out its expense structure for its logistics business versus its marketplace business, I’m not sure how any informed investor can make a reasonable decision about ContextLogic.”

Let’s take a closer look at its Q3 2021 10-QIn the third quarter, the company’s logistics revenue was $148 million, about 3% less than in Q3 2020. For the first nine months of fiscal year 2021, ending on Sep. 30, it had logistics revenue of $621 million, about 100% higher than in the same period in 2020. 

So, the one shining light in an otherwise abysmal business model also appears to be slowing. That’s not good. No wonder company founder and CEO, Piotr Szulczewski, is stepping down

As I said in early October, ContextLogic has two businesses — e-commerce and logistics — neither of which are fully mature. That said, things are a mess at WISH. It needs a Christmas miracle to recover from where it currently sits as a business.

What About Profits?

As I said in my last article, it would be nice if the company broke out its logistics expenses. However, the word “logistics” is mentioned 21 times in its 10-Q and just three times in its Q3 2021 press release

In a 180-degree turn, the company’s press release suggests focusing on its e-commerce platform and moving away from a shift to logistics. 

“The foundation of that plan is to improve and maintain trust with our buyers, and to provide a differentiated and engaging buying experience. In doing so, we expect to drive long-term growth and sustainable unit economics for our eCommerce platform,” stated Executive Chair Jacqueline Reses. “By redoubling our focus on our most frequent buyers, we’re learning what features and products are most likely to catalyze our entire user base to engage and buy on Wish.”

She expects the company’s e-commerce platform to return to growth in the second half of 2022. 

Translation: the company is asking you to trust them for at least seven or eight months until it can report Q2 2022 e-commerce growth. 

That’s a big ask for a stock down from its highs and around 86% from its December 2020 IPO price.    

In December, PYMNTS.com suggested that a combination of poor demographics, lots of red ink, and an over-reliance on Chinese products made it a losing proposition. Unfortunately, that analysis has turned out to be right on the money.

In nine months, ContextLogic’s seen its cash on its balance sheet fall by $910 million. That’s money it can never get back. On a per-share basis, it’s $1.42, or almost 43% of its current share price. 

Can you say value destruction?

Would I Still Buy at $2?

The only thing that would get me to buy WISH stock at $2 is if it manages to hire someone that has more than a passing knowledge of e-commerce retail. 

While the Executive Chair has served on the board of Alibaba (NYSE:BABA), that doesn’t mean she’s got what it takes operationally to lead ContextLogic out of the hole it’s in. 

As Pymnts.com pointed out in December, WISH is basically an online dollar store. So if it can hire a senior executive from Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR), or Dollarama (OTCMKTS:DLMAF), I would revisit my negative outlook on its business. 

At $3.24, its share price is still too high.   

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 


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