ContextLogic (WISH 1.27%), the parent company of the e-commerce platform Wish, went public at $24 per share last December. But the stock is only worth about $3.50 today, due to ongoing concerns about its decelerating growth, loss of monthly active users (MAUs), and lack of profits.

Wish served more than 100 million MAUs at the time of its IPO, but that figure had plunged to just 60 million in its latest quarter. Its revenue rose 34% in 2020, but analysts expect a 17% decline this year. Founder and CEO Piotr Szulczewski will step down next February, and the company expects its revenue to decline sequentially in the fourth quarter -- even after factoring in the busy holiday shopping season.

Regulators in France, one of Wish's top markets, also recently banned the platform amid allegations that its overseas sellers (mainly in China) sold fake, illegal, and dangerous products. All those challenges, along with its ongoing logistics and quality control issues, caused investors to head for the exits.

A merchant gets ready to ship a product to an online buyer.

Image source: Getty Images

I've covered Wish's weaknesses in previous articles, but I haven't discussed the platform's history and evolution yet. So today, I'll turn back the clock and discuss three things about Wish that investors might often overlook.

1. It started out as a recommendation engine

Szulczewski, a former engineer for Alphabet's Google, founded ContextLogic in 2010. It initially developed a recommendation engine that could predict a user's interests based on their browsing habits, then match them to a product or advertisement.

In 2011, Meta Platform's (META 0.83%) Facebook tried to buy ContextLogic for $20 million to integrate its recommendation engine into its ads and news feed. Szulczewski rejected Facebook's offer, then launched Wish as a place for people to curate wish lists for products they wanted to buy from external sites.

By analyzing that data with its recommendation engine, Wish could figure out what other products its users were more likely to buy. That technical foundation enabled Wish to launch its own third-party marketplace.

2. JD.com was one of Wish's earliest investors

JD.com (JD 0.93%), the largest direct retailer in China, invested roughly $50 million in Wish as part of a $500 million funding round in 2015. That only accounted for about 1.4% of Wish's $3.5 billion valuation at the time, but it was reportedly JD's first investment in a U.S. e-commerce start-up.

JD likely invested in Wish to widen its moat against Alibaba (BABA 1.52%) in the cross-border retail market. Back in 2010, Alibaba launched AliExpress to enable Chinese merchants to sell their products to overseas customers. Alibaba bought another cross-border marketplace, Kaola, from NetEase in 2019.

It's unclear if JD still owns its stake in Wish, but its initial interest highlights the similarities between Wish and AliExpress. Both platforms rely on Chinese merchants; they both sell their products at lower prices than regional competitors; and it can take a long time for their products to arrive to end consumers.

3. Both Amazon and Alibaba tried to buy Wish

Amazon (AMZN -1.86%) and Alibaba both approached Wish with buyout offers in 2015 and 2016. Amazon reportedly offered to buy Wish for $10 billion, nearly three times its private valuation at the time.

Wish's rejection of those offers initially seemed like the right move, since it went public with a market cap of $17 billion. But today, Wish is only worth about $2.3 billion -- or a little more than one times this year's sales.

Amazon, Alibaba, and other e-commerce giants might still be interested in acquiring Wish's platform, technology, and users. However, these potential suitors might be waiting for the troubled company's shares to plummet even further before scooping them up for pennies on the dollar.

Therefore, investors should realize that even though Wish looks cheap, it could still get a lot cheaper before it gets bailed out by an acquisition.

The main lessons for Wish's investors

Wish's initial growth spurt was impressive, but the company's business model clearly isn't sustainable. It's trying to resolve its logistics and quality control issues with bigger investments, but those higher expenses will likely make it even tougher to break even as its revenue growth decelerates. It also lacks any meaningful ways to counter larger platforms like AliExpress.

Wish's downfall was disappointing, but investors shouldn't hold their breath waiting for a turnaround or a buyout offer. Instead, they should invest in better-run e-commerce companies with superior growth rates.