E-commerce and logistics company ContextLogic Inc. (WISH) witnessed immense growth during the COVID-19 pandemic due to a surge in online shopping as consumers stayed at home. However, the company could not sustain its growth with the reopening of the economy and a return to physical shopping.

The e-commerce company had a challenging 2022 amid supply chain disruptions, increasing logistics costs, and deteriorating product quality. WISH stock has declined 81.1% in price over the past year. Also, it has plunged 68.5% over the past six months. The stock is trading 82.6% below the 52-week high of $2.93, which it hit on February 1, 2022.

In terms of forward Price/Sales, WISH’s 0.64x is 26.5% lower than the 0.88x industry average. Also, the stock’s forward Price/Book of 0.69x is 74.4% lower than the 2.71x industry average.

WISH continues to struggle with declining revenue, a significant drop in shoppers, and massive losses. During the third quarter of fiscal 2022, the company’s revenues were $125 million, a decline of 66% year-over-year. Its net loss was $124 million, compared to a net loss of $64 million in the prior-year quarter.

Furthermore, WISH’s monthly average users (MAUs) for the quarter declined 60% year-over-year to 24 million. Also, the company’s LTM (Last Twelve Months) active users dropped 65% year-over-year to 16 million. It expects an adjusted EBITDA loss of $90-$110 million for the fourth quarter.

WISH stock has fallen way below $1 per share. On October 28, 2022, the company received a non-compliance letter from NASDAQ, as the NASDAQ Listing Rule requires listed securities to maintain a minimum bid price of $1 per share.

Here is what could shape WISH’s performance in the near term:

Bleak Financials

WISH’s revenue decreased 66% year-over-year to $125 million in the fiscal third quarter ended September 30, 2022. The company’s gross profit declined 79.6% year-over-year to $34 million. Its loss from operations worsened by 103.2% from the prior-year period to $128 million. The company’s adjusted EBITDA loss widened by 216.7% year-over-year to $95 million.

In addition, the company’s net loss was $124 million, widening 93.8% year-over-year. Its loss per share was $0.18, compared to a loss of $0.10 per share in the third quarter of fiscal 2021. 

Also, cash flows from operating activities were negative $100 million, while free cash flow was negative $100 million, compared to negative $344 million in the year-ago period.

Unfavorable Analyst Estimates

Analysts expect WISH’s loss per share for the fourth quarter (ended December 2022) to widen 379.7% year-over-year to $0.15. The consensus revenue estimate of $152.02 million for the same quarter indicates a decline of 47.4% year-over-year. Also, the company failed to surpass the consensus revenue estimates in each of the trailing four quarters.

Furthermore, analysts expect WISH’s loss per share for fiscal 2022 to come in at $0.45, indicating a widening of 38.9% year-over-year. The company’s revenue for the same period is expected to decline 71.6% from the previous year to $592.71 million.

Low Profitability

WISH’s trailing-12-month gross profit margin of 35.28% is 0.8% lower than the industry average of 35.58%. Its trailing-12-month EBITDA margin of negative 41.52% compares to the industry average of 11.09%. In addition, its trailing-12-month net income margin of negative 45.05% compares to the 5.18% industry average.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 47.33%, 27.04%, and 36.44% compare with the industry averages of 12.76%, 6.56%, and 4.42%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.65% is 36% lower than the industry average of 1.01%.

POWR Ratings Reflect Bleak Prospects

WISH has an overall D rating, translating 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 an F grade for Stability. The stock’s beta of 1.46 justifies the Stability grade. Also, it has a D grade for Quality, in sync with its lower-than-industry profitability metrics.

WISH is ranked #55 out of 59 stocks in the D-rated Internet industry. 

Beyond what I have stated above, we have also given WISH grades for Value, Sentiment, Growth, and Momentum. Get all the WISH ratings here.

Bottom Line

WISH delivered a poor financial performance in its last reported quarter. Moreover, analysts seem bearish about the company’s growth prospects and expect it to incur huge losses for at least the next two fiscal years. WISH is trading below its 50-day and 200-day moving averages of $0.64 and $1.31, respectively, indicating a downtrend.

Given the uncertain macroeconomic conditions due to high inflation, the Fed’s tightening of monetary policy, and growing fears of a potential recession, the stock is expected to decline further. So, we think this internet stock is 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 Expedia Group, Inc. (EXPE), Yelp Inc. (YELP), and Travelzoo (TZOO).

WISH shares rose $0.02 (+3.07%) in premarket trading Monday. Year-to-date, WISH has gained 4.57%, versus a 1.48% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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