Is This Internet Stock Too Cheap to Ignore Right Now? Shares of ContextLogic (WISH) have had a free fall this year, with the stock declining more than 77% year-to-date. Although the stock is trading at a discount to its peers,...
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Shares of ContextLogic (WISH) have had a free fall this year, with the stock declining more than 77% year-to-date. Although the stock is trading at a discount to its peers, the uncertain macroeconomic conditions add further gloom to the company's growth prospects. So, will it be wise to invest in the stock now? Read on to learn our view….
Mobile e-commerce company ContextLogic Inc. (WISH) has declined 77.6% in price year-to-date and 82.4% over the past year to close the last trading session at $0.70. The stock is trading 83% below the 52-week high of $3.99, which it hit on November 29, 2021.
WISH's forward Price/Sales of 0.84x is 2.8% lower than the industry average of 0.87x. Its forward Price/Book of 0.92x is 64.8% lower than the industry average of 2.61x.
In the third quarter, the company's monthly average users (MAUs) declined 60% year-over-year to 24 million. Its LTM (Last Twelve Months) active users also fell 65.2% year-over-year to 16 million. The company's marketplace revenue decreased 77% year-over-year to $51 million, while its logistics revenue fell 50% year-over-year to $74 million.
WISH's revenue decline for the third quarter can be attributed to lower marketing spending amid the high inflation and rising interest rate environment and the new pricing practice implemented by the company, which was fully effective during the last quarter. The company expects an adjusted EBITDA loss of between $90 million to $110 million in the fourth quarter.
With inflation remaining uncomfortably high and the Fed's final interest rate expected to be higher, the economy is expected to enter a recession by the start of next year. This is expected to affect consumer spending significantly, further straining WISH's financials.
Furthermore, the company also received a non-compliance letter from NASDAQ on October 28, 2022, as the NASDAQ Listing Rule requires listed securities to maintain a minimum bid price of $1 per share.
Here's what could influence WISH's performance in the upcoming months:
Weak Financials
For the fiscal third quarter ended September 30, 2022, WISH's revenue declined 66% year-over-year to $125 million. Its adjusted EBITDA loss widened 216.7% year-over-year to $95 million. The company's total assets declined 29% to $911 million, compared to $1.28 billion for the fiscal year ended December 31, 2021.
Its gross profit declined 79.6% year-over-year to $34 million. Also, its net loss widened 93.7% year-over-year to $124 million. In addition, its loss per share widened 80% year-over-year to $0.18.
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 71.2% year-over-year to $600.02 million.
Low Profitability
WISH's trailing-12-month levered FCF margin is negative, compared to the 1.35% industry average. Likewise, its trailing-12-month net income margin is negative compared to the 5.12% industry average. Also, its trailing-12-month EBITDA margin is negative compared to the 11.05% industry average.
POWR Ratings Reflect Bleak Prospects
WISH has an overall F 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.
It has a D grade for Sentiment, in sync with the weak analyst estimates.
WISH is ranked #54 out of 58 stocks in the F-rated Internet industry. Click here to access WISH's ratings for Growth, Value, Momentum, and Stability.
Bottom Line
WISH is trading below its 50-day and 200-day moving averages of $0.79 and $1.54, respectively, indicating a downtrend. Despite trading at a cheap valuation, consumer-facing businesses like WISH are expected to be hit badly by the expected recession next year.
Analysts look bearish on WISH's prospects. 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 should consider investing in other Internet stocks with a B (Buy) rating, such as Yelp Inc. (YELP), trivago N.V. (TRVG), and Expedia Group, Inc. (EXPE).
WISH shares were trading at $0.70 per share on Thursday morning, up $0.02 (+2.51%). Year-to-date, WISH has declined -77.49%, versus a -14.29% 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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