ContextLogic Can’t Wish Away Its Problems

  • After a brief rally, ContextLogic (WISH) stock’s two-week slide continues.
  • WISH shares have plummeted in value since the company’s December 2020 IPO and the company has shown little sign of staging a recovery.
  • Yes its is cheap (now trading at under $2 compared to topping $30 in January 2021), but investors should avoid throwing their money away on WISH Stock.
The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.
Source: sdx15 / Shutterstock.com

The ContextLogic (NASDAQ:WISH) story had real potential. By focusing on customers who dreamed about big-ticket online purchases but were held back by modest budgets, the company’s Wish became the hottest e-commerce app on the planet. At least for a short time. In 2018, Wish was the most downloaded e-commerce app in the world, and America’s third largest e-commerce platform. The company was valued at $8.7 billion. WISH stock quickly climbed in value after the company’s December 2020 initial public offering (IPO), peaking at a $30.07 close on Jan. 29, 2021.

It’s been a long, painful slide since then for those early WISH investors. ContextLogic now has a market capitalization of just $1.21 billion. Wish stock is down nearly 94% from those heady days of January 2021. After shares rallied briefly starting in mid-March, there was some renewed interest in the stock. However, that was short-lived. I’m a big fan of some e-commerce stocks, but WISH stock is not one of them. Tempting as the cheap shares might be, I would not be buying any, especially in anticipation of a turnaround and transformation into a long-term growth stock.

WISH ContextLogic $1.86

From the Most Downloaded App to E-Commerce Disaster

When ContextLogic went public, there were high expectations of massive growth. After all the e-commerce company’s Wish seemed to have it all figured out. The focus was on online shopping, catering to the shoppers who wanted it all, but lacked the money to pay for the expensive name brands. Wish built a marketplace of cheaper versions that were sold direct-to-consumer. The formula delivered revenue that nearly doubled in 2018, hitting $1.9 billion.

There was no reaching for additional opportunities like other e-commerce giants in the U.S. and China have done. No cloud computing data centers, no streaming video service, and no membership fees to pay. Just cheaper versions of popular products.

The problem is that the cheap products being sold on Wish were essentially knock-offs. The company might have been able to get away with that when it was an upstart, but there’s no way that model could scale up.

Wish’s Reliance on China Is a Problem

As Wish became more mainstream, many of its newfound customers were unimpressed. They complained about poor quality knock-offs and delivery times that could stretch into many weeks. In the EU, tech companies began to remove the Wish app from their app stores and scrubbed Wish from search results as the company came under fire for selling goods that were deemed to be unsafe.

All of this was bad news for investors who saw their WISH stock holdings plummet in value. When ContextLogic reported its fourth-quarter results in March, the damage being done was obvious. Revenue of $289 million was down 64% year-over-year. The company was laying off staff, “right-sizing” its business, and looking for organizational efficiencies. As InvestorPlace contributor Mark R. Hake has pointed out, the company is burning through cash as well, to the tune of $949 million in 2021. Two weeks after the earnings went public, WISH stock closed at $1.70, an all-time low.

If all this sounds bad, it is. But adding to the misery is the company’s reliance on China. Where else are you going to find all those cheap, no-name knock-off products Wish built its business on?

That reliance on China is very problematic. From the Chinese government’s crackdown on internet businesses, to the U.S. government cracking down on counterfeit products, to an extended trade war between the U.S. and China, there is nothing but trouble there for ContextLogic. And no easy way to fix it.

Bottom Line: WISH Stock Is Not a Good Investment

The last time I wrote about WISH stock, it earned an “F” in Portfolio Grader. I suggested that investors — especially those looking for long-term growth opportunities — avoid WISH. At that point, shares were going for $2.03 and were on the verge of hitting rock bottom before staging a mini rally.

Five weeks later, the “F” rating is still there, shares are worth even less, and the situation doesn’t look any more encouraging. WISH stock remains a risky investment with little hope of a turnaround.

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Read More:Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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