ContextLogic Won’t Recover Until Management Stops the Cash Burn

WISH stock - ContextLogic Won’t Recover Until Management Stops the Cash Burn

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ContextLogic (NASDAQ:WISH) stock has fallen dramatically since I last wrote about it on Jan. 14. I have been deeply skeptical of WISH stock, and it has now fallen to $1.90 as of April 18. I was pounding the table in January when it was at $2.53 and prior to that on Dec. 16 when it was at $3.11. I suspect WISH stock could keep falling given it is still burning through cash and is very unprofitable.

The company operates Wish, an e-commerce platform that connects users to merchants. Revenue fell 64% in the fourth quarter of 2021 to $289 million, and dropped 18% for the full year.

Moreover, its free cash flow (FCF) was a miserable negative outflow of $50 million in Q4. This is worse than the negative $25 million in FCF in Q4 2020, although not as bad as the $344 million cash burn in Q3.

It burnt through about $949 billion in 2021 based on its Cash Flow Statement for 2021. So far the company is weathering this storm, as it still had $1.2 billion in cash and equivalents plus marketable securities at the end of the year.

The CEO said that the reduction to a much lower cash outflow number was a “material improvement.” Almost any other company would see this as an indication that it is still on the wrong path going forward.

The CEO talked about three pillars that are the most important to the long-term financial health and growth of Wish. He said they were improving the user experience on their website, deepening their merchant relationships and making organizational efficiencies.

Unfortunately, none of those are the kind of drastic moves the company needs to take immediately to get profitable. Simply put, it has to cut its costs pretty dramatically. There was no talk about this in the CEO’s statement. As it stands, the average of six analysts surveyed by Refinitiv (Yahoo! Finance) shows that they expect a loss of 52 cents per share this year on revenue that is 48% lower at just $1.08 billion.

In other words, WISH stock will continue to fall, and there seems to be no end in sight for its decline. This is because ContextLogic will likely keep posting negative free cash flow and burning through its cash. Until the market sees an end to this situation, WISH stock likely won’t recover.

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On the date of publication, Mark Hake did not hold (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.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


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