The Only Positive on ContextLogic Is Things Can’t Get Much Worse (Right?)
ContextLogic (NASDAQ:WISH) management characterized weak third-quarter results released on Nov. 10 as ‘progress on its turnaround strategy.’
That was wishful thinking to be sure. There doesn’t appear to be anything remotely close to a turnaround occurring. It’s much more a slow slide into irrelevance as value slowly drains out.
That’s really all investors should take from the continued post-IPO slide of the discount e-commerce firm.
Big Disappointment
On the one hand, WISH stock represents a potential buy-the-dip opportunity. At least that’s one way to characterize the stock. If you see any “truth” in the valuation of the company a year ago at the $22 IPO price, then the current $3.65 a share is too good to pass up.
But, on the other hand, ContextLogic is really just a flagging firm quickly becoming a non-story in the stock market.
The single reason I could see to consider it — and it’s a weak one — is that it’s a short squeeze play. Well, sort of. The fact is that short interest in WISH stock sits at 15.6% as I write this. That’s well below the short interest of many of the names on this tracker. Yet, at close to 20%, it’s still relatively high.
Other than that there’s no reasonable argument in favor of establishing a position in ContextLogic.
We only need to look back at Q3 results to be reminded of that fact.
Q3 Results
If anything, there’s a strong narrative to be made for e-commerce right now. We’re still in the midst of the pandemic, thus consumers should be shopping online more than ever. That should benefit WISH stock.
However, in the three months that ended Sept. 30, ContextLogic saw revenues decline by 39% over the same period in 2020. The lone bright spot for the company this year came in the form of logistics revenue which increased by 101%, to $621 million.
But overall ContextLogic isn’t really improving. Revenues barely improved — only 3% — through the first nine months as compared to the same period in 2020.
The company maintained the vague hope that it was realigning itself toward a rebound. However, management did note that it expected Q4 revenue to be lower than Q3 levels despite the fact that this is the holiday season. That’s really the part that irk any potential investors right now.
Mounting Troubles
Although ContextLogic missed guidance in Q3, it wasn’t a huge miss. Consensus estimates were that it would record $372 million in revenue in the period. It only missed narrowly, recording $368 million.
The real issue is how much worse things got after that. ContextLogic management said that it anticipates less than $368 million in Q4. Before management said that, consensus estimates were that the firm would reach $469 million in revenues in Q4.
That is just about as bad as things get to be frank. That prompted the firm to announce that it was searching for a replacement for CEO and founder Piotr Szulczewski only days after Q3 earnings were announced.
That search continues. But it’s hard to imagine that any one individual will put ContextLogic back together again.
What to Do With WISH Stock
I think it’s obvious that I’m not big on WISH stock. I don’t believe in their products. I don’t believe that any turnaround will materialize.
The thing that does surprise me is that ContextLogic has a consensus “hold” rating from the analysts covering it. It’s difficult to put any faith in that at all given how rapidly WISH stock has declined since its Dec. 16, 2020 IPO.
Days earlier WISH stock jumped up by roughly 15% on hearsay on Reddit. That too, looks like nothing investors should have any faith in either.
As it now stands, there’s little of interest behind WISH stock. It’s cheap, so it may be alluring because it almost has nowhere to go but up, but that’s a poor reason to jump in.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
