Don’t Write Off the ContextLogic-Wish IPO As a Flop
If someone wanted to prove that not every initial public offering in 2020 was an immediate success, they would only need to point to the ContextLogic (NASDAQ:WISH) IPO and the subsequent price performance of WISH stock.
As the stock ticker symbol implies, ContextLogic is the parent company of Wish. Since Wish is a discount e-commerce platform, and since high-profile IPO’s in 2020 generally did well, you’d think that WISH stock should have rocketed upward. Right?
Well, it’s funny how the market likes to dash people’s expectations. Even on its first day of public trading, WISH stock wasn’t a huge hit. Indeed, the sellers seemed to control the price actions on that day.
Not only that, but WISH stock tested the patience of loyal shareholders after that first trading day. So, does this mean that it’s time to cut and run? Or, can we find reasons to stay the course in anticipation of a late-game grand slam?
An Underwhelming Start for WISH Stock
To begin, let’s rewind and look back upon WISH stock’s brief and perhaps disappointing journey.
On Dec. 15, the company raised an impressive $1.1 billion by selling 46 million shares of WISH stock at $24 apiece. This represented the upper end of the $22 to $24 price range established earlier.
In hindsight, it might have been an error for ContextLogic to start WISH stock at the upper end of that range. Sure, it helped the company to rake in more capital in the beginning.
On the other hand, it appears that the market generally didn’t agree that the shares were worth $24 each. Thus, on Dec. 16, WISH stock opened at $22.75, fell to a low of $19.48 and closed out the trading session at $20.05.
That’s not an encouraging start, as it represented a loss of 16.5% for that first day. Interestingly, more than 80 companies have gone public in the U.S. since 1995 with a valuation of more than $10 billion. WISH stock was one of only 14 companies in that group to fall on its first trading day.
Things didn’t improve in the following weeks, unfortunately. As of Jan. 11, WISH stock was trading at $19.61. So, the bulls will have to work harder if they’re going to at least reclaim the IPO price.
So, what the heck happened? Isn’t e-commerce a red-hot sector? And, doesn’t everybody like a discount?
Of course, there’s still a market for what Wish offers. I suspect that too-high expectations among IPO investors in 2020 are what hurt WISH stock the most.
University of Florida finance professor Jay Ritter’s call for realistic expectations should be heeded by overeager traders.
“Even when there’s a very hot IPO market, that doesn’t mean everything jumps up… It looks like the investors have decided that the valuation got a bit ahead of itself,” Ritter said.
A Huge, Underserved Demographic
Actually, it could be quite bullish if people view WISH stock as a flop. At least now, the share price is lower and the hype-and-disappointment phase is in the rear-view mirror.
Besides, Wish still can still go about its business of offering online shopping options at low prices. It’s basically like an online version of a dollar store – not a bad business to be in during these challenging times.
Founder and CEO Peter Szulczewski, as we would expect, prefers to highlight the positive aspects of Wish’s business model.
“We focus on delivering as much value for our consumers as possible, and that’s served us well… We believe this is an underserved demographic,” explains Szulczewski.
This demographic appears to be both underserved and massive, as Wish has more than 100 million monthly active users in over 100 countries.
The Bottom Line
Was WISH stock a flop among 2020’s IPO’s? I suppose that it was, but a lower share price isn’t the same as a bad business model.
With a strong user base, Wish could flourish and generate strong revenue going forward. And if that happens, a turnaround in WISH stock could follow.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.