Context Logic: Wishing for a Miracle
It has been a trial by fire in the public markets for ContextLogic (WISH) stock as shares have crashed by 74% since last December’s debut. Going by the e-commerce company’s latest quarterly results, unless the stock gets another retailer-assisted push, the near-term does not hold much promise of a recovery either.
Wish delivered Q3 revenue of $368 million, a 39% decline from the same period last year while missing the Street’s $377 million estimate. Monthly Active Users (MAUs) dropped year-over-year by 40% to 60 million.
“The 3Q revenue decline follows disappointing 2Q results which saw the company reduce marketing spend amid declining user engagement, a trend which persisted into 3Q,” said Stifel’s Scott Devitt.
The sharp 63% cutback in digital advertising spend saw adj. EBITDA of -$30 million beat the Street’s - $69.2 million estimate while coming in ahead of the company’s guidance for -$70mm to -$65mm.
That, however, was scant consolation considering the company’s outlook. Despite the upcoming holiday season which normally results in expectation of a better QoQ performance, the company did not provide Q4 guidance, but nevertheless warned Q4’s revenue is expected to come in below Q3’s haul, with revenue in October already trending south. Moreover, the company also announced the departure of founder and CEO Piotr Szulczewski, who will remain on the board after he steps down in February.
On the plus side, Devitt notes the company is “working to improve” the quality of the products and merchants on its marketplace, as part of a “renewed focus” to brush up the platform. The company also plans on expanding the the platform's social commerce capabilities as part of a wider scheme to “add new value to shoppers and leverage the discovery-based functionality of the platform.”
However, despite the stock’s cheap valuation, Devitt is apprehensive until there’s concrete evidence a turnaround is in the cards.
“Shares currently trade below the company's marketplace peers, though debates surrounding the issues of profitability, user engagement, China related risk, and the user experience and its long-term impact to growth are still to play out,” the 5-star analyst summed up.
Accordingly, Devitt stays on the sidelines with a Hold rating, and his $5 price target suggests shares will stay range-bound for the foreseeable future. (To watch Devitt’s track record, click here)
Other analysts are no more upbeat; with an additional 2 Holds and Sells, each, the stock boasts a Moderate Sell consensus rating. A year from now, shares are expected to be trading in a similar range, considering the average price target currently stands at $5.5. (See WISH stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
