WISH Stock will soon no longer be a profitable investment in e-commerce
How should investors understand ContextLogic (NASDAQ:WISH) currently in stock? After all, it doesn’t seem like its price is currently affected much by short-term interest rates. This brief interest quickly faded and sat down to 5.38% July 1. These levels are unlikely to have a noticeable effect on stock prices.
Perhaps investors should then view WISH stocks as an e-commerce game that’s only temporarily below its December IPO. The narrative would be to ignore that WISH stock is below IPO prices and focus on the upside.
More likely though, the smart game is to assume that stock prices still have a long way to go before they reach IPO levels. Let’s start there.
The IPO went well …
Shareholders who entered the IPO floor saw prices appreciate 55% in the first 10 weeks. But it was almost all downhill afterwards. A brief short-term spike in interest in early June has been the only catalyst for prices to rise in the past five months.
This is by no means a strong narrative. Basically it looked like the IPO was too expensive and WISH was heading for the single digits. Right now, my thesis is that the short-term spike in interest, which has dissipated, is sending more investors to dive into ContextLogic’s fundamentals.
They are judging whether the time has come to enter low cost. Because although WISH has a lot of problems, it also has a lot of room for optimism.
This keeps the prices stable because they are not ready to give up just yet. In short, stock prices are now in a standoff. But they should come down slowly. This is because the fundamentals are still mostly bleak.
To understand why we only have to look at the first quarter results presentation.
Income and losses
First quarter revenue reached $ 772 million for ContextLogic. Compare that to the quarter of a year earlier and things look good. In the first quarter of 2020, the company reported revenue of $ 440 million, which means it was up 75% from the previous year.
In the first quarter of 2020, ContextLogic incurred a net loss of $ 66 million of that $ 440 million in revenue. Given that revenue rose from $ 440 million to $ 772 million in the first quarter of 2021, it would be logical to expect the net loss to have turned into a positive number.
Unfortunately, that was not the case and the company’s net loss fell from $ 66 million to $ 128 million, even as revenue increased by 75%.
Not only are its results bleak, but they are also very volatile. The company has been everywhere in terms of both revenue and loss for the past few quarters. As a result, it is very difficult to make an informed guess where this is going.
The opportunity is there
WISH certainly has a huge opportunity ahead of it. there is no doubt. It hopes to bring an affordable and entertaining mobile shopping experience to customers around the world.
In 2019, 63% of the total addressable e-commerce market of $ 3.4 trillion was mobile-driven. By 2024, the cake will reach $ 6.3 trillion and 71% of traffic will be mobile-based. So there is no doubt about the overall desirability. However, there are many reasons to doubt that WISH will emerge as a champion.
In addition, the company’s projections for the second quarter are not very attractive. It projects between $ 715 and $ 730 million in revenue and EBITDA loss of $ 55 to $ 60 million.
These revenues would be lower than the revenues for each of the last two quarters. And in the second quarter of 2020, the company posted positive EBITDA of $ 16 million. Investors won’t be happy when it turns negative from $ 55 million to $ 60 million in the second quarter of 2021.
WISH stock should soon see a downtrend. As more investors drawn to recent interest-driven short-term issues dig into the numbers, WISH is expected to stagnate. Someday it might turn out to be a worthwhile investment in e-commerce, but the day is not today.
At the time of publication, Alex Sirois had (neither directly nor indirectly) positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.