ContextLogic (WISH -2.84%), the parent company of the e-commerce platform Wish, has been a tough stock to own. It went public just over a year ago at $24 per share, but it's now only trading at about $3 a share.
Wish's stock tumbled as its monthly active users (MAUs) declined, its revenue growth decelerated, and it continued to bleed red ink. Its logistics and quality control issues, the abrupt resignation of its founder and CEO Piotr Szulczewski, regulatory headwinds in France, and insider sales exacerbated that sell-off.
I've covered Wish's history and its recent troubles before, but I haven't talked a lot about its longer-term growth potential. So today I'll discuss what the next five years might look like for Wish.
Image source: Getty Images.
2022-2023: Addressing the near- to mid-term challenges
Wish ended the third quarter of 2021 with $1.2 billion in cash, cash equivalents, and marketable securities. That was down 43% from $2.1 billion a year ago. Its net loss also widened year over year, from $176 million to $303 million, in the first nine months of 2021.
Wish's first near-term priority will be to stop that bleeding. It's been reining in its marketing expenses, but it's also been increasing its logistics investments and subsidies for higher-quality merchants. That balancing act could be very difficult to pull off as its revenue growth decelerates.
Wish will also need to reduce its dependence on Chinese merchants for cheap products. Its overwhelming dependence on China is the root of many of its logistics and quality control issues, but it also differentiates its marketplace with cheaper products than regional e-commerce competitors.
Wish's next CEO, who hasn't been named yet, will need to attract more merchants in the U.S., Europe, and other markets while retaining higher-quality Chinese merchants. If it wants to stabilize its margins, it will also need to accomplish those goals without relying too much on lower commissions, subsidized shipping fees, and other loss-leading perks.
Wish's next CEO will also need to quickly resolve the company's troubles in France, where allegations of unsafe products recently caused its mobile app to be banned and its website to be removed from top search engines. France's moves could cause other countries in Europe, which accounted for 47% of Wish's revenue in the first nine months of 2021, to follow suit -- so the company must stomp out this spreading fire before it burns down its largest market.
If Wish can make progress on all those fronts, it will likely need to ramp up its marketing efforts again to stabilize its MAUs, which plunged from over 100 million at the time of its IPO to just 60 million in its latest quarter.
But for now, analysts still expect a lot of near-term pain. They expect Wish's revenue to drop 17% in 2021, decline 16% in 2022, and possibly rise 34% in 2023 if its turnaround efforts bear fruit. They also expect it to remain unprofitable, but for its net losses to gradually narrow through 2023.
2024-2025: Securing new partnerships
If Wish can turn around its core business, it will need to gain more allies to widen its moat against Alibaba's (BABA 2.92%) AliExpress, which also enables Chinese merchants to sell cheap products to overseas buyers.
For inspiration, Wish should look at Vipshop's (VIPS 0.13%) decline and rebirth in China. Vipshop, which owns a flash sale marketplace, went public at a split-adjusted price of $0.65 per share back in 2012.
Vipshop's stock skyrocketed to nearly $30 in early 2015 as it impressed investors with its robust growth rates, but it dropped back to the single digits over the following two years as that momentum faded. Alibaba's Taobao, Pinduoduo, and other low-end marketplaces were constantly pulling shoppers away from Vipshop, and its long-term outlook seemed dire.
However, Tencent (OTC: TCEHY) and JD.com (JD 2.61%) saved Vipshop with a big co-investment in late 2017 and integrated its flash sale marketplace into their own platforms. By the end of 2019, more than a fifth of Vipshop's new users were coming from Tencent's WeChat platform and JD's e-commerce marketplace, and its revenue was consistently growing again.
Wish needs to find similar allies in the social networking and e-commerce markets to stabilize its MAU growth and reduce its marketing expenses.
Pinterest and Snap, which are both expanding into the "social commerce" market, might be worthwhile partners. PayPal, which was reportedly interested in buying Pinterest last year, might consider investing in Wish to expand its e-commerce reach. Even Amazon, which once tried to buy Wish, could partner with the company to expand its third-party marketplace.
2026 and beyond: Carving out a defensible niche
If Wish can overcome its near-term challenges and secure more partnerships to widen its moat, it might carve out a defensible niche by 2026.
If that happens, then investors who buy the stock today at less than one times this year's sales could be well rewarded over the next five years. But for now, Wish is still cheap for obvious reasons, and I think investors should continue to avoid its battered stock until some green shoots appear.
