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Why Wish Stock Plunged Nearly 17% in December

By Jon Quast – Jan 5, 2022 at 10:31AM

Key Points

  • ContextLogic could struggle to grow its revenue in the coming year.
  • Some members of the company's leadership team have recently walked away, raising red flags with investors.
  • It won't be easy, but Wish does have several assets it can leverage to its advantage in order to save its business.

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Some on Wall Street see more tough times coming in 2022.

What happened

Shares of e-commerce and logistics company ContextLogic (WISH -1.50%), commonly called Wish, plunged 16.6% in December, according to data provided by S&P Global Market Intelligence. The month started with an analyst downgrade, which caused the stock to fall. Later in the month, a high-level leader abruptly stepped away from the company, fueling concerns over Wish's long-term business prospects.

So what

The tough times for Wish started on Dec. 2 when Kunal Madhukar, an analyst with UBS, downgraded the stock from buy to neutral, according to The Fly. To summarize, Madhukar believes revenue will be challenged in 2022 and expenses will remain high. In other words, what plagued Wish in 2021 could continue to affect it in 2022.

A visibly tired business person rubs their eyes with a down stock chart shown on a computer in the background.

Image source: Getty Images.

To be sure, 2021 was a tough year for Wish. It reported financial results for the third quarter of 2021 in November, which gives us data for the first nine months. Through the first three quarters, total revenue was actually up 3% year over year. However, the only part of the business that grew was Wish's logistics segment, and that's a lower profit-margin business. 

Deteriorating profitability is part of the reason Wish stock is down a stunning 90% from its 2021 high. It wasn't a profitable business to begin with, and it's getting worse. Through the first three quarters of 2021, the company had negative free cash flow of $903 million on just $1.8 billion in revenue, leading some to wonder how it's going to turn things around.

In November, Wish's CEO and founder Piotr Szulczewski decided to step away. And on Dec. 20, Joseph Lonsdale suddenly announced he was also resigning from his job on the board of directors. With a struggling business and stock price, seeing these insiders walk away is alarming for investors and likely contributed to Wish stock's 17% decline in December.

WISH Chart

WISH data by YCharts

Now what

If there's a silver lining, it's that Wish still has over $1 billion in cash, which is a lot to work with. And perhaps leadership changes could actually be a good thing. Fresh eyes on the business might lead to new perspectives and more profitable pursuits. 

Moreover, Wish still has 60 million monthly active users as of Q3. That's down a troubling 40% year over year. But 60 million is still quite a large user base. And the company is getting a lot of new merchants on the platform, adding 12,000 in Q3 alone. Therefore, this is another asset that can be leveraged to its advantage.

Regarding its free cash flow, many of the factors negatively hitting Wish are expected to abate in 2022. Management actually expects to be close to breaking even, meaning its $1 billion could buy it plenty of time to survive and reinvigorate its declining user base. 

A new CEO for ContextLogic is expected to be announced within the next four weeks. That yet to-be-named executive's track record and plan for the company will be two things for shareholders to evaluate when deciding what to do with Wish stock.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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