As companies go, ContextLogic (NASDAQ: WISH) should have boomed over the past year or so during the pandemic. The company is an online shopping store operating under wish.com, so commonly referred to as Wish. But the Wish share price has crashed this year, down over 78% at time of writing.
So what’s gone wrong? And does this present me with a buying opportunity?
Wish.com and recent results
Wish connects buyers and sellers through its website. Merchants are able to list their products on the platform, while also enabling users to personalise the items they buy.
But in the company’s third-quarter results to 30 September, revenue declined by 39% from the same period last year. This is concerning given how much the e-commerce sector is growing right now.
The net loss across the quarter did reduce, from $99m to $64m. The executive chair put this down to more efficient and reduced digital advertising. However, across the full nine months to September, the net loss was $303m, which was an increase from a loss of $176m over the same nine months in 2020.
My biggest concern in the results was the expectation of lower revenue in the fourth quarter, despite it being the festive season. As a potential investor in Wish, I would want to see revenue grow significantly over the Christmas period.
Wish also said the current CEO will step down, though he will remain on the board of directors. I expect this to cause some disruption at the company until a successor is found.
France removes wish.com
Outside of the recent results, the French government this week announced that it is ordering online websites to remove Wish’s listings as it says a large number of its products are dangerous. This is a huge blow to the company. Wish has already issued a statement to say it’s commencing legal action against the claim.
The bull case
Until recently, the company had grown its revenue at an impressive rate, from $1.1bn in 2017 to $2.5bn at the end of 2020. It operates in the growing e-commerce sector, so if the business can overcome its recent issues then it may be able to get back to its previous growth rates.
Then, online marketplaces have the potential to develop excellent network effects. This makes for a strong economic moat which I wrote about here. Wish may have the potential to do the same for the personalised consumer products market.
The bear case
The recent results and expectations for declining revenue in the fourth quarter is a big concern in my view. It says to me that the company needs to spend considerably on digital advertising to keep revenue growing. With only $1bn in cash on the balance sheet, and already generating a net loss of $303m in 2020, Wish might not have enough cash. Indeed, the company says itself it’s reducing its spending on advertising.
But the recent claims from France that its products are dangerous means I cannot invest today. Until this is resolved, I’ll be staying away. I understand why the Wish share price has crashed, and think there are better stocks to consider.
