Share prices of ContextLogic (WISH +0.00%), which owns the e-commerce platform Wish, plunged to an all-time low on Aug. 13 after it posted ugly second-quarter numbers that missed analysts' estimates.
Wish's revenue fell 6% year over year to $656 million, missing estimates by $67 million and marking its first quarter of declining sales since its IPO last December. Its net loss widened from $11 million to $111 million, or $0.18 per share, which also missed estimates by four cents a share.
Image source: Getty Images.
Wish's monthly active users (MAUs) declined 22% year over year to 90 million during the quarter, its quarterly active buyers tumbled 44% to 17 million, and its active buyers over the last 12 months dropped 26% to 52 million. On a sequential basis, global installations of Wish's app dropped 13% as the average time spent on its platform fell 15%.
Like many other e-commerce companies, Wish struggled with tougher year-over-year comparisons as more businesses reopened -- but it also admitted its own logistics challenges and quality control issues reduced its user retention rates. As Wish's top-line growth decelerated, higher logistics expenses and ad prices weighed down its bottom line.
Wish's stock now trades at less than a third of its IPO price of $24 a share, but it remains a hot topic and battleground stock for the bulls and bears. Let's see why everyone is still talking about Wish, and whether or not there's any hope left for this battered stock, which trades at just 1.5 times this year's sales.
Can Wish address its biggest shortcomings?
Wish's platform sells discount products to buyers in more than 100 countries. Most of its merchants are located in China, so it takes a long time to receive deliveries and process returns. Wish has also struggled with complaints about low-quality and counterfeit products.
During Wish's latest conference call, CEO Peter Szulczewski said shipping issues were no longer the top source of customer complaints. But Szulczewski also admitted the costly expansion of its own logistics network failed to boost its overall customer retention rates, and that quality control issues with products had replaced shipping problems as the top source of customer complaints.
Szulczewski said Wish needed to look beyond logistics and "improve other areas of our business, starting with product quality." Wish plans to address its quality control issues by "prioritizing products and merchants that receive positive ratings and feedback" and implementing a new revenue-sharing model that "incentivizes" merchants to sell higher quality products and ship their orders faster.
In other words, investors should expect steeper losses as Wish supports its sellers with subsidies, expands its logistics network, and grapples with rising mobile ad costs. Most of Wish's shoppers use Android devices, but Apple's recent crackdown on targeted ads on iOS is causing advertisers to bid higher prices for Android-based ads. That shift is squeezing Wish's marketing budget, reducing the efficiency of its ads, and forcing it to rethink its digital ad campaigns.
Don't expect a turnaround anytime soon
Wish plans to reduce its marketing expenses to free up more cash to expand its logistics network and quality control initiatives. However, it expects that lower ad spending to throttle its MAU and revenue growth in the third quarter. Wish's MAUs already declined 9% monthly from June to July, so its third-quarter numbers will likely represent an ugly continuation of this ongoing slowdown:
|
Growth (YOY) |
FY 2019 |
FY 2020 |
Q1 2021 |
Q2 2021 |
|---|---|---|---|---|
|
MAUs |
23% |
19% |
(7%) |
(22%) |
|
Revenue |
10% |
34% |
75% |
(6%) |
Source: ContextLogic. FY = Fiscal year. MAUs = Monthly active users. YOY = Year over year.
Wish didn't provide any guidance, but its second-quarter miss indicates it will struggle to meet analysts' expectations for 24% sales growth this year.
On an adjusted EBITDA basis, Wish posted a net loss of $67 million, compared to a profit of $16 million a year ago. It expects its adjusted EBITDA to improve sequentially by the fourth quarter, but that promise could be tough to keep as it struggles with a loss of shoppers, lower engagement rates, and rising costs.
Wish also doesn't have much of a moat against similar cross-border platforms like Alibaba's (BABA 0.10%) AliExpress, which enables its Chinese merchants to ship products to overseas buyers. It's also exposed to the unresolved U.S.-China trade war and tariffs on Chinese imports.
The bears are right about Wish
Wish grew slower than Amazon (AMZN +1.63%) throughout the pandemic last year, and it's facing year-over-year declines as Amazon merely faces decelerating (but positive) growth in a post-pandemic market.
Wish initially garnered lots of attention with its aggressive discounts, but its ongoing slowdown exposes its biggest flaws. Its turnaround plans are wobbly, and it readily admits that shipping and quality control issues -- which are both deeply rooted in its dependence on China -- are hurting its business.
It's already been tough for e-commerce leaders like Amazon and Etsy to impress investors in this reopening-oriented market, so it still doesn't make any sense to buy a struggling underdog like Wish.
