ContextLogic (WISH 2.68%), which is often referred to by the name of its e-commerce platform, Wish, went public at $24 per share last December. But if you had invested $1,000 in Wish's stock at its IPO price, your investment would only be worth about $250 today. Let's see why Wish failed to impress the market.

An employee talks on the phone while reviewing a chart on their monitor.

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How does Wish make money?

Wish's online marketplace connects sellers, most of whom are located in China, with buyers in over 100 countries. Wish's sellers generally offer their products at lower prices than other online marketplaces, but it can take weeks for those orders to arrive.

Some of Wish's merchants have been accused of selling counterfeit, illegal, and dangerous products, and it can take a long time to process refunds and returns. Despite those challenges, Wish has continued to attract bargain-seeking shoppers, and it reached over 100 million monthly active users (MAUs) last year.

Last year, Wish generated 80% of its revenue from its core marketplace business. Ninety percent of that core revenue came from the marketplace's service fees, while the rest came from its native ProductBoost ads. The remaining 20% of Wish's overall revenue came from its logistics business.

Why did investors lose interest in Wish?

Wish's revenue growth accelerated last year as more people bought products online during the pandemic. Its MAUs rose 19% year over year to 107 million by the end of fiscal 2020.

But in the first half of 2021, Wish's user growth stalled out, and its MAUs dropped to 90 million by the end of the second quarter. Its revenue surged 75% year over year in the first quarter against an easy comparison to the pandemic's initial impact a year ago, but fell 6% in the second quarter.

Growth (YOY)

FY 2019

FY 2020

Q1 2021

Q2 2021











Source: ContextLogic. YOY = Year-over-year.

During the second quarter, Wish's quarterly active buyers plunged 44% year over year to 17 million, while its long-term active buyers (over the previous 12 months) tumbled 26% to 52 million. Global installations of Wish's app also fell 13% sequentially as the average time spent on its platform dropped 15%.

Like many other e-commerce platforms, Wish faced tougher post-pandemic comparisons as more businesses reopened. But during last quarter's conference call, CEO Peter Szulczewski also admitted that Wish still faced ongoing customer complaints regarding its long shipping times and quality control issues. Higher mobile ad prices have also been squeezing its margins.

Analysts expect Wish's revenue to decline 12% this year, followed by less than 1% revenue growth next year, and it will likely remain unprofitable during both years. Wish briefly became a "meme stock" and hit an all-time high of $32.85 back in early February, but its ugly first- and second-quarter reports scared the bulls away -- and they might not ever come back.

Will Wish's stock ever rebound to its IPO price?

Wish's stock might seem cheap trading at just 1.6 times forward sales. After all, Alibaba (BABA -1.34%) and Amazon (AMZN 0.41%) trade at 2.6 and 3.4 times this year's expected sales, respectively. However, Alibaba and Amazon are both firmly profitable, and analysts expect both e-commerce giants to generate much stronger sales growth than Wish this year.

Alibaba's AliExpress, a cross-border marketplace that allows Chinese merchants to ship products to overseas buyers, also competes directly with Wish. AliExpress surpassed 150 million active buyers globally three years ago, so it's likely at least three times larger than Wish today.

Wish doesn't have much of a moat against AliExpress, and its 52 million active buyers are scattered across over 100 countries. That fragmentation also makes it difficult for Wish to compete against focused regional leaders like Amazon, MercadoLibre, and Sea Limited's Shopee.

Wish's growth is decelerating as the idea of buying cheap products from China loses its luster, and its costs will continue climbing as it upgrades its logistics network and offers merchants more financial incentives to sell higher-quality products and ship their orders faster.

Those challenges will throttle its near-term growth, so I doubt Wish will return to its IPO price of $24 -- which would value the company at nearly seven times forward sales -- in the near future.