ContextLogic Stock Is a Value Trap Even at These Low Prices


Investors in the eCommerce group ContextLogic (NASDAQ:WISH) stock have not had a good year.

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

So far in 2021, WISH stock is down about 80%. Coming from an all-time high of $32.85 in late January, shares hit a 52-week low of $2.94 on Dec. 17. They currently hover around $3.30.

About a year ago, WISH stock made its public debut through an initial public offering (IPO) at $24 per share.

However, the early IPO hype did not last long and the market saw a reversal of investors’ sentiment. Wall Street has voiced serious concerns regarding ContextLogic’s actual growth prospects.

While the global economy is still under pressure due to the rapidly spreading omicron variant, the growth of eCommerce has slowed down in Q3 compared to 2020.

“Online shopping as part of the Black Friday fell to $8.9 billion in 2021 from previous year’s $9.0 billion,” suggests a recent holiday shopping report by Adobe (NASDAQ:ADBE).

According to the Census Bureau of the Department of Commerce, “the estimate of U.S. retail e-commerce sales for the third quarter of 2021 totaled $204.6 billion, a decrease of 3.2% (±0.4%) from the second quarter of 2021.” Furthermore, the growth of eCommerce sales in Q3 was significantly less than the growth in total retail sales.

Given the recent decline in WISH stock, contrarian readers might begin to see value in the share price, but the future is likely to bring stronger headwinds than opportunities for ContextLogic. Therefore, potential investors might want to wait on the sidelines until the company proves it is capable to survive in the post-pandemic era. Here’s why.

How Recent Quarterly Results Came

ContextLogic was founded in 2010. Its website and app have around 500 thousand merchants, based mostly in China. In November, management released third-quarter metrics that raised eyebrows.

Revenue of $368 million decreased by 39% year-over-year (YOY). Net loss of $64 million translated into a loss of 10 cents per diluted share. In the year ago period net loss and loss per diluted share were $99 million and 92 cents, respectively. Cash and cash equivalents of $1.1 billion at the end of Q3 were down by $893 million from Dec 31, 2020.

“[W]e continued to implement our aggressive plan to make key strategic, operational and structural improvements, which we believe will enable Wish to achieve its full potential,” said Executive Chair Jacqueline Reses on the results, adding, “We are confident in our ability to return to growth during the second half of 2022, while creating significant shareholder value over time.”

Despite management’s rosy words, Q3 SEC filings indicated that in the first nine months of 2021, the company burned through $902 million in cash.

Furthermore, within the past year, its monthly active user numbers (MAUs) have declined from 100 million to 60 million. The Q3 core marketplace and logistics revenues of ContextLogic declined 55% and 3% YOY, respectively.

Looking ahead, management expects Q4 revenue to be below that of Q3. This decline comes during the holiday shopping season, which should normally boost revenue.

Adding WISH Stock to Portfolios

Among nine analysts polled, WISH stock has a “hold” rating. Also, the consensus of seven analysts for the 12-month median price target stands around $5, implying a 54.3% upside potential from current levels. The 12-month price estimates currently change between $4 and $12.

WISH shares trade at 0.79 times trailing sales and 2.51x book value. These metrics imply that the stock is relatively undervalued. By comparison, (NASDAQ:OSTK), Poshmark (NASDAQ:POSH) and Shopify (NYSE:SHOP) currently trade at 0.97x, 4.24x, and 39.79x sales value, respectively.

Despite the valuation levels that make an investor wonder if WISH stock offers value, it is hard to suggest that ContextLogic offers significant upside for the near term.

Thus, investors should consider keeping the stock on their radar to see the results of the management’s actions to achieve growth and decrease the cash burn. 

Alternatively, interested readers could consider buying an exchange-traded fund (ETF) that provides exposure to WISH stock as a holding.

Examples include the Amplify Online Retail ETF (NYSEARCA:IBUY), the ProShares Online Retail ETF (NYSEARCA:ONLN), and the VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ).

The Bottom Line on ContextLogic

WISH is primarily known for offering products to budget-conscious buyers. Most of its merchants are located in China.

Although the app is regarded as consumer-friendly and prices might look attractive, the concept of buying mainly from China carries risks, including supply chain problems, low-quality merchandise as well as potentially counterfeit goods. As a result, customers have been leaving the site.

In early November, WISH announced its founder and CEO, Piotr Szulczewski, would be leaving his post in early 2022. While Szulczewski would remain on the company’s board, the new CEO is still be to appointed.

The market reaction to the transition has been negative, mainly interpreting it as strategic disruption amidst the ongoing major business slowdown.

Given numerous looming challenges, ContextLogic stock is likely to continue the downward spiral in the near future. Thus, WISH stock is a speculative play until it appoints a new CEO and starts implementing a solid crisis management strategy.

On the date of publication, Tezcan Gecgil 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 Publishing Guidelines.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to and the U.K. website of The Motley Fool.

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