ContextLogic Works On Borrowed Time as It Can’t Seem To Turn a Profit

ContextLogic (NASDAQ:WISH) is a discount e-commerce company that’s been around since 2010. In 2018, it was the most downloaded app in the world. In 2019, it was the third biggest e-commerce marketplace in the world. It went public in mid-December, with WISH stock gaining 24% in its first month of trading.

These kinds of stats are impressive. And it makes sense that when WISH stock went public it quickly became a meme stock, an “Amazon.com (NASDAQ:AMZN) of the people” if you will.

You see, the Wish.com site is set up for retailers all over the world to offer their wares. And that means a lot of goods that are produced in developing countries and manufacturing-heavy countries around the world are selling their wares directly to the consumer.

You end up with a stunning array of products, but you’re not exactly going to find a lot of listing for high-end name brand products. But up to now, Wish.com wasn’t built for conspicuous consumption. It was built for people that want decent products at a great price.

You’ll see a number of these e-commerce firms on various other platforms like Amazon.com and eBay (NASDAQ:EBAY), or Wayfair (NYSE:W) for example. But they aren’t household names.

For example, say you want to buy a mattress-in-a-box. You may get a few names you recognize, but most of them are low-priced options that are most attractive for their price point.

WISH Stock Has Fundamental Problem

There’s a lot of talk about WISH stock being some kind of Amazon-killer at some point. Maybe that’s what the initial hype was on social media.

It’s not that. The company has made statements recently that it’s trying to bring in more brand names and go a bit more upscale. That may make U.S. investors happy, since most people that have money for gambling disguised as investing usually aren’t shopping on Wish.com.

But there are tens of millions of people out there who are buying and selling products with the help of WISH stock’s platform.

And the company makes a lot of money. But it can’t seem to turn a profit. This isn’t a new issue. It remains a fundamental problem with the business. The company certainly has the volume of sales going for it. And it continues to grow its revenue. But it remains unprofitable, and that’s an issue.

A Cautionary Tale

I remember a couple of decades ago, as the dotcom market was taking off. There were significant efforts by major computer makers and software titans to explore the opportunities outside of the developed world.

They understood that relatively wealthy nations were buying devices, but the poorer nations didn’t have the means to access this technology. And those consumers made up a majority of the world’s potential customers.

The thinking by the big tech firms was they were in a low-margin business. If they could produce functional machines at a low price, they could sell billions of them by expanding the market.

But quarterly earnings made this high-minded idea a passing fancy. Upgrading existing customers with money was more profitable than retooling your business for a potential audience with a very inflexible price point.

Wait For Profit

Another concern with WISH stock is the fact that it decided to go public now. When a company goes public, basically investors are taking on the risk that the original owners and investors had on their shoulders.

Once public, they can cash out and then operate the company for shareholders. If things don’t work out, usually the C-suite isn’t going to fare too badly.

My point is, this may well be the final act for WISH stock. It was gussied up for an IPO, and now maybe someone buys it or continues to languish. It’s hard to see how it reinvents itself on the fly, especially since the money goes out faster than it comes in.

Yes, WISH stock has a $3.3 billion market cap — even after a nearly 70% decline year to date. But that doesn’t mean much unless it starts to show it can actually generate some earnings.

This isn’t a David and Goliath story as much as it is a Little Train That Could. Although in this case, it may be a little train that in the end couldn’t. Don’t bottom fish this one until it actually turns a profit.

On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

GS Early (aka, Gregg Early) has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time. He’s seen a few things and hears more.