ContextLogic (WISH -3.29%), the e-commerce services company that owns the e-commerce platform Wish, went public last December at $24 per share. The market wasn't impressed, however: The stock opened at $22.75, closed at $20.05 on the first day, and is now worth about $8.50.

In its IPO filing, ContextLogic claimed Wish was the "most downloaded global shopping app for each of the last three years," based on Sensor Tower's data, with over 100 million monthly active users (MAUs) in more than 100 countries. It also claimed to differentiate itself from other e-commerce marketplaces with its emphasis on personalized visual browsing instead of traditional searches.

A couple shops for goods online on a laptop.

Image source: Getty Images.

It claims over 70% of its sales now come from personalized browsing instead of text-based searches, and that its users "engage with our app in a similar manner to how they engage with social media; scrolling through image-rich, highly engaging, and interactive content."

That "social shopping" approach sounds interesting, so why did investors shun the stock? Let's take a closer look at Wish's business and see if it's a worthwhile investment after its post-IPO plunge.

How fast is Wish growing?

Shoppers initially used Wish's app to create wish lists, which were then matched with merchants. Wish expanded its app into a full e-commerce marketplace, which connected sellers to buyers, in 2013.

Today, Wish generates most of its revenue from transaction, advertising, and logistics fees. Its ads promoted products within Wish's marketplace and across external social media platforms, and it fulfills cross-border orders with its own logistics services.

Wish's revenue rose 10% to $1.9 billion in 2019, then grew 34% to $2.5 billion in 2020. Those growth rates were decent, but other e-commerce companies grew at much faster rates throughout the pandemic.

For example, Amazon's (AMZN -1.54%) third-party seller services revenue increased 50% to $80.5 billion in 2020. Shopify's (SHOP -2.19%) sales surged 86% to $2.9 billion last year, while Etsy's (ETSY -1.99%) revenue more than doubled to $1.7 billion.

Wish's revenue jumped 75% year-over-year to $772 million in the first quarter of 2021, but it faced an easy comparison to the pandemic's disruption of its business a year ago. For the full year, analysts expect its revenue to to grow just 24% to $3.2 billion.

The biggest problems with Wish

Wish is still growing, but it has three glaring weaknesses. First, most of its half-million merchants are located in China, despite its ongoing efforts to add more American, Latin American, and European sellers to the mix.

Parcels in a warehouse.

Image source: Getty Images.

Wish's heavy dependence on Chinese sellers has sparked constant complaints about counterfeit goods and long wait times for orders and returns. It also exposes it to higher tariffs and the unresolved trade war.

Second, Wish relies on discounts and flash sales to attract shoppers, and shoulders a lot of its cross-border expenses with its own logistics services. As a result, it remains deeply unprofitable.

Wish's net loss narrowed from $208 million in 2018 to $129 million in 2019, but widened to $745 million in 2020 as its operating expenses soared 39% to $2.2 billion throughout the pandemic. Its adjusted EBITDA loss widened from $127 million to $217 million.

In the first quarter of 2021, Wish's net loss nearly doubled year-over-year to $128 million, while its adjusted EBITDA loss widened from $51 million to $79 million. Analysts expect it to remain unprofitable for the foreseeable future.

Amazon, Shopify, and Etsy were all profitable by GAAP measures last year. Therefore, it doesn't make sense to invest in the unprofitable underdog when its higher-growth peers are already in the black.

It's cheap, but it should be ignored

Wish seemingly wants to replicate Pinduoduo's (PDD -4.65%) discount business model on a global scale. But Wish is growing at a much slower rate than the Chinese e-commerce giant, and its heavy dependence on sluggish cross-border sales should limit its total addressable market.

Wish's stock might seem cheap at 1.7 times this year's sales, but it's trading at about a third of its IPO value because it's deeply unprofitable, its revenue growth is decelerating, and its MAUs are spread too thinly across the world to make it a household name like Amazon or Shopify.