22 Feb 6 Reasons to Avoid ContextLogic
ContextLogic, Inc. (NASDAQ: WISH) which operates the online e-commerce platform Wish.com, and was one of the companies that benefited from the COVID-19 pandemic, smashing it out of the park with its revenue growth. However, the end of the pandemic put a full stop to its dream run. The Company has been struggling to replicate the success it tasted in 2021, but to no avail so far. The Stock of the Company had reached an all-time high of $31.19 on 1 February 2021, with a market capitalization of $18.31 billion, before plummeting to the current $2.21 levels. The stock has decreased by over 80 percent since last year.
The growth has considerably slowed down, revenues have declined, CEO Piotr Szulczewski left the company and there is a flurry of insider selling, making it one stock that you should currently avoid.
ContextLogic, Inc. (NASDAQ: WISH)
Market Cap: $1.40B; Current Share Price: 2.17 USD
Data by YCharts
A Flawed Business Model
WISH is an online marketplace that connects “value-conscious” customers to merchants around the world. The Company uses a combination of technology and data science to deliver a personalized shopping experience for its users.
The Company managed to do well during the pandemic, but things have quickly gone downhill since the end of the pandemic. WISH sold products at a cheaper price than competitors like Amazon (NASDAQ: AMZN), majorly because it was sourcing them from Chinese Merchants. There have been complaints of the products being of inferior quality, duplicate and even fakes. In addition, the shipping and waiting times are longer than those of competitors and returns take longer to process as well.
The growing resistance to Chinese products, trader and tariff wars and supply chain and logistical delays due to the pandemic further exacerbated the difficulties being faced by the Company.
Exodus of Active Shoppers
In December 2020 at the time of its IPO debut, the Company had more than 100 million monthly active users (MAUs), a number that has steadily declined over the past three quarters, ending the third quarter 2021 with just 60 million. The MAU’s declined by 39% over Q2,2021, while the revenues slid by 40% over the previous quarter.
WISH also witnessed a steep decline in other key metrics such as last 12-month (LTM) active buyers, which stood at 46 million during Q3,2021, a decline of 32% YoY, which it attributed to lower spending on digital advertisement.
The Company’s competitors such as Amazon, Alibaba (NYSE: BABA)and MercadoLibre (NASDAQ: MELI) on the other hand, have experienced slower growths as well, but none of them are experiencing serial quarterly or YoY declines like the Company. For instance, Shopify (NYSE: SHOP), another e-commerce platform, reported 40% losses, but has still managed to generate positive operating cash, in addition to positive free cash flow over the trailing 12 months.
Declining Revenue
The steep declines in active shoppers translated to lower order volumes and revenues for the Company, which is reflected by a 40% decline in revenue for the nine months ending September 30,2021 that stood at $368 million. Furthermore, the marketplace revenue that constitutes approximately 60% of the revenue, nosedived 52% YoY to close at $148 million, while logistics revenues fell by 3% YoY to $148 million.
The only consoling factor was that revenue increased by 3% for the nine months ended September 30,2021, but it can hardly be considered significant as any such gains were offset by revenue decline in the most recent quarter, along with sliding monthly active users. WISH reported sales of $1.8 billion, while it used up $902 million in operating expenses over the past 9 months.
The losses for the Company are mounting, with WISH losing $64 million in the three months ending September 30,2021 and reporting a net loss of $303 million for nine months ending September 30,2021.
The Company has close to $1.1 billion in cash and equivalents, however the rate at which it continues to lose money, its resources are likely to be depleted by the end of 2022 or in the best-case scenario by the end of first quarter 2023.
Setback in France
In November 2021, the Company faced a setback in France, after a group of ministers asked search engines and mobile app stores to hide WISH websites and mobile apps. The decision was made after an investigation revealed that ninety-five percent of the toys acquired from the platform failed to comply with European Regulation, with 45% of them being deemed dangerous. Electronic goods did not fare any better, with 90% of them being considered dangerous. Though the sample consisted of 140 items, the investigation found other concerning facts such as failure to keep a record of transactions that pertain to non-compliant and dangerous products.
The shadow ban was brought into force taking advantage of new European Regulations that allow blocking of websites and apps that do not conform to regulations. The website is still available on phones which have installed it, but will not be visible in search results on search engines or app stores.
Key Management Exits
In November 2021, WISH announced that Piotr Szulczewski, the Chief Executive Officer of the company was stepping down from his role, while continuing to remain on the board of directors. The CEO’s exit came at a time when the Company needed his guidance the most as it attempted to turnaround its fortunes. The CEO had the option of receiving 10 million shares as part of a stock incentive plan, which were to be his if he had remained with the Company until December 2022.
The decision to forfeit these shares is highly puzzling, with the Company deciding to reverse the $16 million recognized under stock-based compensation expenses.
The Company appointed Vijay Talwar as Chief Executive Officer and a member of the Company’s Board of Directors, effective February 1, 2022 as a successor to former CEO, Piotr Szulczewski.
In June 2021, the Company’s Chief Financial Officer (CFO) Rajat Bahri announced his decision to quit the Company and was replaced by Brett Just and Jennifer Oliver as interim Co-CFOs.
Insider Selling
Insider selling cannot be the sole indicator for investing in a stock, but it would be wise to make a note of the buying and selling activities to gauge a company’s prospects or the lack thereof. While insiders buying or selling the Company’s stock could provide investors with a general idea about the direction it is headed, a thorough understanding of its fundamentals, recent news and analyst estimates should be taken into consideration while making an investment decision.
Insiders have been selling WISH stock, for instance on December 17, 2021, many members of the management team including Founder/CEO Piotr Szulczewski, CFO Brett Just, Vice President Liu Pai, Director Jacqueline D. Reses and General Counsel Devang Shah collectively sold 142,887 shares, for a total consideration of $440,649.
This was followed by further selling on January 18, 2022 of 66413 shares worth $162,712 by the same entities, with the exception of Director Jacqueline D. Reses. During the past 3-months, insiders have sold 776,450 shares of the company.
Conclusion
WISH is making efforts to turnaround its fortunes, such as the introduction of new features like”Wish Clip”, a new shoppable video feature that aims to attract and retain higher-value users, improve customer experience and simplify purchases. The feature allows merchants to upload a 5-30 second video about their product and enables customers to gain more information about usage and styling, access merchant stores and add products to their shopping cart.
In November 2021, the Company extended its partnership with Klarna, a retail bank, to allow flexible payment options to consumers in the US, as part of its ‘Buy Now, Pay Later’ (BNPL) offerings.
The Company has also launched WISH Standards aimed to improve merchant quality, refine performance rewards, promote transparency and build trust between merchants and customers.
WISH expects to launch multiple new products and features to improve customer and merchant experience on the platform in 2022, but how fruitful will they be in reviving the Company, only time can tell!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://www.nasdaq.com/market-activity/stocks/wish/insider-activity
https://www.secform4.com/insider-trading/1822250.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1822250/000119312521204781/d188114d8k.htm
https://www.businesswire.com/news/home/20220131005789/en/Wish-Appoints-Vijay-Talwar-as-CEO
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