Avoid ContextLogic Until It Fixes Its Financials

  • ContextLogic (WISH) has made a rally of over 40% from its 52-week low, but this rally has all the features of a dead-cat bounce
  • The fourth-quarter and fiscal-year 2021 financials showed weak fundamentals, continued net losses and a deterioration of other key metrics
  • Investors should avoid buying the penny stock, as the business is declining
Closeup of mobile phone screen with logo lettering of wish (owned by ContextLogic) shopping app, blurred website background (focus on center of logo)

Source: Ralf Liebhold / Shutterstock.com

ContextLogic (NASDAQ:WISH), an e-commerce company operating in Europe, North America, South America and more, has witnessed a relief rally of its shares of approximately 40% within the last month. But WISH stock still has losses of nearly 85% in the past year.

This rally could help the case for shares finding a bottom after a bumpy year that has sent the stock price from over $15 to a 52-week low of $1.60. The fourth-quarter and full-year 2021 financials have shown that the business is in severe trouble, as several red flags make the short-term rally look prone to end soon.

For a rally to be sustainable, it needs to have a solid base … and unfortunately, this is not the case now for WISH stock.

WISH Contextlogic $2.28

Is WISH Stock Profitable?

The answer to that is that ContextLogic wishes it was a profitable company.  Its fourth-quarter earnings report on March 1   showed a net loss of $58 million for the quarter ending on Dec. 31, 2021, which was 90% better than the net loss of $569 million in the same quarter a year ago.

For the full year of 2021, ContextLogic reported a net loss of $361 million, lower than the net loss of $745 million in FY2020.

Contextlogic has been unprofitable in all four quarters in FY 2021. What is even worse for WISH stock is that the company has not been profitable at all for the full period of 2017-2021.

If you are looking for an e-commerce penny stock in the internet retail industry that shows consistent profits, WISH stock shouldn’t be on your list.

WISH Stock Fundamentals Show a Troubled Business

Some of the key metrics like monthly active users (MAUs), last-12-months (LTM) active buyers, gross margin and free cash flow in Q4 2021 and FY2021 showed that ContextLogic has a severe troubled business.

In Q4 2021 revenue declined to $289 million versus $794 million in Q4 2020, and year-over-year MAUs declined 57.69% to 44 million, LTM active buyers declined 40% to 38 million and gross margin narrowed to 42% versus 57%.

The same trend to revenue and gross profit applies for the full year 2021. Revenue declined 16% to $2.1 billion versus $2.5 billion, and gross profit narrowed to 53% versus 63%.

An important key metric, free cash flow, was also negative for the quarter and the full year. For FY 2021, ContextLogic reported a free cash flow of -$953 million, compared to a free cash flow of -$2 million in FY 2020.

These figures reveal a bleak financial performance for Contextlogic and an urgent need to build a turnaround into a more sustainable and profitable business model.

Is WISH Stock a Buy Now? No.

The financial report showed lackluster results for Q4 2020 and FY2021. WISH stock is to be avoided, as the guidance for Q1 2022 was for a negative EBITDA in the range of -$70 million to -$60 million.

A slowdown in revenue growth, a cash burn problem, the gross margin getting narrower and continued net losses are more than enough fundamental reasons to avoid WISH stock and search for value, growth and profits elsewhere.

On the date of publication, Stavros Georgiadis 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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/contextlogic-wish-stock-troubled-business/.

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