Mobile e-commerce company ContextLogic Inc. (WISH) has declined 75.8% in price year-to-date and 85.8% over the past year to close the last trading session at $0.75. The stock is trading 87.6% below the 52-week high of $6.07, which it hit on October 21, 2021.
With inflation remaining persistently high and the Fed reiterating its hawkish stance, the economy is expected to enter a recession by the start of next year. This is expected to affect consumer spending significantly in the upcoming months, further straining WISH’s financials.
WISH’s CEO Vijay Talwar admitted that the company was not immune to the changes in consumer habits driven by macroeconomic factors and that its growth plans could get hindered in the second half of 2022.
The company’s revenues declined roughly 80% year-over-year in the last reported quarter, with Core Marketplace, Product Boost, and Logistics revenues declining 86%, 78%, and 70%, respectively. Revenue also missed the consensus estimate by 13.2%. Furthermore, WISH anticipates its adjusted EBITDA loss to be $110 million to $130 million in the third quarter ended September 2022.
Here’s what could influence WISH’s performance in the upcoming months:
Weak Financials
WISH’s revenue declined 79.6% year-over-year to $134 million for the second quarter ended June 30, 2022. The company’s gross profit fell 89.1% year-over-year to $42 million. Its total cash, cash equivalents, and restricted cash came in at $701 million, compared to $1.40 billion for the fiscal year ended December 31, 2021.
Unfavorable Analyst Estimates
WISH’s EPS for fiscal 2022 and 2023 is expected to remain negative. Its revenue for fiscal 2022 is expected to decline 65.6% year-over-year to $716.27 million.
Low Profitability
WISH’s trailing-12-month levered FCF margin is negative, compared to the 1.69% industry average. Likewise, its trailing-12-month net income margin is negative compared to the 5.62% industry average. Also, its trailing-12-month EBITDA margin is negative compared to the 11.25% industry average.
POWR Ratings Reflect Bleak Prospects
WISH has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. WISH has a D grade for Quality, consistent with its poor profitability.
WISH is ranked #53 out of 64 stocks in the F-rated Internet industry. Click here to access WISH’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Bottom Line
With fears of a recession increasing, consumer-facing businesses like WISH are expected to be hit badly. Consumer spending is expected to contract in the upcoming months. The company’s growth plans are expected to be affected in the year's second half.
Analysts look bearish on WISH’s prospects. So, given the company’s weak financials and low profitability, the stock could be best avoided now.
How Does ContextLogic Inc. (WISH) Stack Up Against Its Peers?
WISH has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Internet stocks with a B (Buy) rating, such as Expedia Group, Inc. (EXPE), trivago N.V. (TRVG), and Yelp Inc. (YELP).
WISH shares were trading at $0.73 per share on Thursday afternoon, down $0.03 (-3.63%). Year-to-date, WISH has declined -76.53%, versus a -22.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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