Pullback after Rough Q2 May Present Opportunity By TipRanks
I am bullish on ContextLogic (WISH), which owns and operates Wish, as its competitive positioning in a strong growth sector, and cheap share price, offset its current challenges.
Wish is one of the world’s largest mobile e-commerce platforms, offering affordable shopping experiences to millions of customers in over 100 countries.
Customers can enjoy a unique shopping experience that combines both technology and data science.
Although the company fared poorly in the second quarter of Fiscal Year 2021, ContextLogic is one of the most popular mobile shopping apps, with over 90 million monthly active users.
It has a solid balance sheet and almost no debt. The company holds marketable securities and cash with cash equivalents in excess of $1.6 million.
The cash burn rate, when compared with the cash balance isn’t alarming unless similar low performance continues in the following quarters.
ContextLogic’s second quarter of 2021 had total revenue of $656 million, showing a 6.4% decline in revenue on a year-over-year basis.
The Logistics segment showed a strong 126% growth in revenue due to the strong adoption of the company’s end-to-end shipping solutions, and continuous improvement in merchant monetization — but it was offset by a 32% decline in Core Marketplace revenue, to $378 million.
This decline can be attributed to lower order volume and decreased conversion rates for new buyers. Year-over year, active buyers declined 44% to 17 million.
The company’s Product Boost revenue stood at $50 million, showing an increase of 11% from the second quarter of 2020. ContextLogic helped merchants increase their advertising spending. This led to the rise. Although the company expected that user retention would improve following improvements in its logistics, it found its users were less loyal.
ContextLogic posted poor Q2 results. ContextLogic reported poor results in Q2. However, it still has some positive points, such as its large number of monthly active users and solid cash position.
ContextLogic stock looks quite reasonably priced at the moment. Its trailing twelve month enterprise value is just 0.8x. And its trailing trailing 12 months unlevered free cash flows are 32.5x.
EBITDA should increase 41.6% while revenues will grow by 4.6% over 2022.
Wall Street’s Take
From Wall Street analysts, ContextLogic earns a Hold analyst consensus, based on two Buy ratings, six Hold ratings, and two Sell ratings in the past three months. The upside potential is 69.1%, according to the WISH average price target of $9.81.
Summary and Conclusions
ContextLogic is positioned in a rapidly growing space, and sells at an attractive valuation, as the stock has sold off sharply over the past year.
The business’s growth has slowed significantly and it is struggling to retain customers. This makes the investment thesis somewhat uncertain at this point.
Wall Street analysts remain neutral about the stock. However, the average price target for the share is much higher than the current price. This suggests significant upside potential.
Disclosure: Samuel Smith didn’t hold any positions in the securities discussed in this article at the time it was published.
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