Can ContextLogic Stock Rebound in February?

E-commerce firm ContextLogic (NASDAQ:WISH) stock rose a strong 16% in intraday trading on Monday without any apparent stock-related news to suggest a change in the troubled company’s fortunes.

Wish, a ContextLogic company a worldwide online shopping app.
Source: sdx15 / Shutterstock.com

WISH stock is still down 91% over the past year. Could Monday’s strong rally point to a sustained rebound in February?

An Imminent CEO Departure Rallies WISH Stock

The rally in ContextLogic stock on Monday might still be connected with a general rise in technology stocks during the trading session. A tech-heavy Nasdaq was up 3.4% for the day.

However, WISH stock’s rally coincided with the last day of the company’s founder and CEO Piotr Szulczewski at the helm of the company. Piotr, an ex-employee of Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) founded the value-focused e-commerce company 10 years ago.

After a very rough patch in 2021, the founder decided to step down as CEO in November, and would leave as soon as his replacement was found, or no later than Feb. 1.

The company has been looking for his replacement since. And it installed one in an aftermarket announcement on Monday.

Speculation was high on investment platforms that a big announcement could be made either on Monday or early on Tuesday.

ContextLogic Gets a New CEO

In an after-hours announcement on Monday, ContextLogic announced the hiring of Vijay Talwar. Talwar was recently the CEO of Foot Locker’s (NYSE:FL) Europe, Middle East, and Africa (EMEA) division. ContextLogic revealed that Talwar, while working as president of Foot Locker Digital, successfully repositioned it as a fast-growing and most profitable segment within the parent company’s portfolio.

Perhaps the new CEO has an idea or two that could help revive WISH stock.

A Tricky Time for Leadership Change

ContextLogic suffered a severe decline in its active customer base in 2021. Quality control issues, delayed deliveries, slow customer returns processing and a government-ordered removal of WISH’s apps from app stores in France combined to deal ContextLogic a severe blow to its quarterly revenue and earnings.

After a strong $794 million quarterly revenue post for December 2020, sales declined to just $368 million by September 2021, marking a 64% compound annual decline in sales. Signs indicated a potentially significant drop in revenue for the fourth quarter of last year.

The company responded to customer exodus and regulatory challenges by stopping any advertising expenditures, offering financial incentives to high-quality vendors on its platforms, extending significant discounts to customers, and taking over some logistical services.

One might argue that a CEO transition was perhaps not the best thing to happen WISH stock, and shares shed another 55% since the leadership departure was announced. The company needed its founder’s guidance the most during this trying time.

That said, Szulczewski will retain his board seat.

Could a New CEO Make a Big Difference?

It is not too late for executives to rescue ContextLogic from its decline, but the company’s kind of problems may need more than just a CEO change to fix.

One famous quote from investing legend Warren Buffett could be applicable somehow to ContextLogic’s recent past, its current business profile, and the new CEO’s stellar past success record:

“When a manager with a reputation for brilliance tackles a business with a reputation for bad economics it is the reputation of the business that intact,” reads one of Warren Buffett’s famous quotes.

There’s still significant risk regarding the company’s prospects and long-term strategic direction post its 2021 disaster.

However, the new CEO, and a well-articulated recovery plan, could give better visibility to the company’s future revenue and cash flow trajectory, and these metrics have a significant impact on the perceived fair valuation of WISH stock.

That said, Talwar’s assumption of the leadership role at ContextLogic post its founder’s departure means he has some big shoes to fill. Company founders usually have long-term strategic visions that usually lead to success, but at the expense of short-term pain for a generally near-sighted Wall Street that reacts violently to quarterly results and announcements.

Investor Takeaway

ContextLogic has hired a new highly experienced CEO, but the direction in which WISH’s stock price will take in February may depend not only on the new leader’s past track record and experience but on how the market will perceive any new strategic initiatives announced going forward.

The company is caught up in a tight spot. If customer churn is largely a result of suspended advertising, then the company must spend significant sums in advertising campaigns to rebuild its customer base. High expenditure will mean elevated cash bleeding. If revenue run-rates remain depressed, WISH could gobble up its $1 billion cash balance in no time.

WISH’s net cash per share of $1.89 could be the most important fundamental item that provided a flow to the share price. Take that away and investors could be looking at new bottoms if earnings numbers disappoint and induce more fear in March.

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On the date of publication, Brian Paradza did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based, long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness.” You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains and the cryptocurrencies asset class.


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