ContextLogic: Why Wish's Revenue Has Plunged Amidst Rebrand

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ContextLogic, Inc. (NASDAQ:WISH), amended known to investors arsenic, is group to study Q4 2022 net later this period (currently estimated to beryllium announced connected February 23rd). We'll beryllium looking to spot cardinal updates astir caller gross trends and strategical plans for nan remainder of 2023. There are a fewer areas of interest that I judge request to beryllium addressed connected this telephone because arsenic things guidelines now, I stay bearish connected nan near-term prospects of ContextLogic for a fewer reasons:

  1. Cost cutting is importantly impacting revenues: Through nan first 9 months of 2022, revenues are down an astonishing 75% from nan anterior twelvemonth owed to reduced trading and advertisement spending. This isn't sustainable successful my sentiment for what was antecedently known arsenic a maturation company.
  2. Macro headwinds still dishonesty up successful 2023: Many e-commerce giants specified arsenic Amazon (AMZN) issued cautionary warnings astir slowing request this year. Consumer discretionary stocks specified arsenic ContextLogic could beryllium importantly impacted.
  3. Cash pain is still very high: I deliberation this is nan astir morganatic interest I person correct now. Shareholder dilution successful nan adjacent mates of years is imaginable if nan institution is forced to raise further rate to enactment afloat.
  4. Revenue sources are changing: During Q3, logistics gross outpaced halfway marketplace revenue. This is concerning successful my sentiment because ContextLogic's logistics business operates connected overmuch little margins.
  5. Competition remains fierce: Amazon, Walmart (WMT), Target (TGT), Pinduoduo (PDD), Alibaba (BABA), and galore different e-commerce companies pinch much resources and amended scalability proceed to put successful improvements to little prices, which whitethorn situation Wish's value-oriented strategy.

And I'm not unsocial successful these concerns. ContextLogic's stock value has plummeted much than 95% since going nationalist a fewer years ago. The existent operating exemplary simply does not look profitable. Expenses are still measurement excessively high, and now revenues are being impacted by nan caller cost-cutting actions.

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Since WISH banal value fell beneath $1, it became non-compliant pinch nan NASDAQ listing norm which requires listed securities to support a minimum bid value of $1/share. On October 28th, 2022, ContextLogic received a announcement missive from NASDAQ saying nan institution had 180 almanac days, aliases until April 26, 2023, to regain compliance. CFO Vivian Liu noted connected nan Q3 net telephone that nan squad was evaluating alternatives specified arsenic a reverse banal divided to move shares complete $1. It will beryllium absorbing to spot if location is immoderate update there.

In my opinion, awesome changes request to beryllium made successful bid to person Wall Street of a turnaround story. There needs to beryllium a existent tangible scheme extracurricular of nan 3 Pillars and customer retention improvements, arsenic noted by guidance during nan Q3 net position arsenic nan biggest instauration for growth: 3 Pillars

ContextLogic 3Q 2022 Investor Presentation

While location person been immoderate notable goals achieved successful nan short term, investors will yet request much to warrant buying shares. A batch of downside is presently priced into nan stock price.

Slowing Revenue and Macro Headwinds

When ContextLogic first went nationalist a fewer years agone during nan pandemic, nan institution was putting up awesome top-line maturation numbers. Founder and erstwhile CEO Peter Szulczewski was focused connected quickly expanding during a clip erstwhile online shopping was a immense attraction pinch everyone staying astatine home. A batch has changed since then. Due to nan excessively precocious rate pain from expanding excessively quickly, nan institution was forced to trim advertisement spending recently, which successful move impacted gross growth. At nan aforesaid time, Wish is now forced to woody pinch macro headwinds arsenic nan world system faces a recession. A batch of user discretionary companies focused connected e-commerce are expecting challenges successful 2023. For example, Amazon precocious announced it secured financing successful anticipation of a slowing economy. I judge Wish will besides expect to look akin challenges.

Cash Burn

As I mentioned earlier, ContextLogic's existent rate position and rate pain is still my biggest concern. As of September 30th, 2022, ContextLogic had rate and rate equivalents of $587 cardinal positive an further $250 cardinal successful marketable securities. Over nan past fewer quarters, rate pain has been anyplace from $50 to $150 million. There needs to beryllium immoderate type of betterment successful nan adjacent fewer quarters aliases ContextLogic whitethorn beryllium forced to raise further rate by either diluting shareholders aliases issuing debt.

To management's credit, rate pain has travel down considerably. They addressed these issues done layoffs and reduced spending. However, this determination has go a double-edged beard arsenic gross suffers greatly erstwhile trading walk is reduced and worker headcount goes down. It's a reliable situation, to opportunity nan least, and Wall Street knows that. As shares presently waste and acquisition astir $0.60 astatine nan clip of writing, location isn't overmuch optimism. The reduced spending is simply conscionable buying nan institution much clip for a turnaround.


At this time, I do not deliberation location is immoderate logic to judge ContextLogic will study a amended 2023 gross maturation outlook than different e-commerce companies specified arsenic Amazon successful my opinion. Major e-commerce companies person been giving bleak outlooks this twelvemonth arsenic rising liking rates and elevated ostentation proceed to effect nan user discretionary sector. It's almost expected to spot little gross maturation arsenic ContextLogic focuses connected cutting costs. The biggest mobility remaining is really agelong tin ContextLogic past earlier being forced to raise further cash. Before buying ContextLogic shares, I judge investors should astatine slightest hold and get clarity from guidance during nan Q4 net telephone later this period astir what type of maturation is expected for nan remainder of 2023. If Amazon's 2023 outlook was immoderate indicator, ContextLogic whitethorn underperform successful nan adjacent word post-earnings.

Editor's Note: This article covers 1 aliases much microcap stocks. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Reality Check Research floor plan picture

Trader pinch 10 years of acquisition focused connected U.S. equities. My extremity is to thief group observe caller finance opportunities (both agelong and short) utilizing a fundamentals-based approach.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga

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