ContextLogic (WISH -2.84%), the parent company of the Wish e-commerce marketplace, made its market debut last December. But after less than six months on the public markets, the company's stock is already down more than 70% from its highs. 

Despite consistently growing its revenue, the company has been plagued by losses, which seems to have driven investors away. Let's see whether or not Wish can turn things around. 

Young women holding a credit card and shopping on her phone.

Image source: Getty Images.

The business model

Wish is a mobile-first e-commerce marketplace designed primarily for cost-conscious consumers. The company offers some of the cheapest listings of any marketplace worldwide and buyers are often willing to sacrifice a bit of quality in exchange for the platform's cheaper prices.

Home to more than 100 million monthly active consumers, Wish also helps its customers discover new items based on user preferences. According to the company's latest annual report, 70% of the purchases made on the platform didn't involve any search query at all but instead came from users browsing Wish's product feed. 

Since cost is the largest determining factor for Wish customers, they're often not only willing to sacrifice some quality but also to wait longer to receive items. Wish's time to delivery is reported to be anywhere from 15 to 45 days with that number growing even larger amid the pandemic due to shipping struggles. Though this should improve as Wish adds more Wish Local pick-up stores, the number remains much higher than peers like Amazon or Etsy.

Wish by the numbers

Since Wish is a two-sided marketplace, the company generates revenue from both shoppers and merchants. By offering various logistics solutions for its merchants, Wish was able to boost its revenue from logistics to $245 million for the quarter -- a 338% increase from the year prior.

This boost in revenue from merchants was a great addition to the already strong growth from the company's core marketplace. Together, the two sides resulted in overall revenue jumping by a remarkable 75% versus the same period a year ago. 

However, despite the strong growth in revenue, the company continues to bleed money. In its most recent quarter Wish had $128 million in net losses -- more than double the amount from the same period a year before. This lack of profitability seems to have deterred many investors since the company trades at a dirt cheap valuation in relation to its peers. Wish currently has a price to gross profit of 2.8 times, whereas competing marketplaces such as Amazon and Etsy both tout gross profit multiples of roughly 10 times.

What could go wrong?

Though Wish certainly has a compelling valuation given its current growth, there are a few concerns investors should keep an eye on. In its most recent quarter, Wish spent more than 100% of its gross profit on sales and marketing expenses even though the company's customer count declined. 

Since Wish has roughly $1.8 billion in cash and equivalents on its balance sheet, it's logical that the company is pouring money into growth-related initiatives. However, if Wish is unable to successfully drive repeat customers, it's hard to imagine a future with profitable growth.

For investors, it's important to focus on Wish's spending in relation to the number of active buyers. If Wish is able to sustain or grow the number of active buyers on its platform without spending as much to attract them, it could mark a future of profits for the company and potentially a revival of the stock price as well. 

Whether or not Wish will able to do that remains to be seen, and due to that uncertainty, Wish's stock will be staying on my watch list for the time being.