ContextLogic (WISH +0.00%), the parent company of online marketplace Wish, went public in December 2020 at $24 per share. Its stock hit an all-time high of $31.19 last February but now trades at less than $1.
Wish struggled with a continually declining number of shoppers, plunging revenue, and ongoing losses. It was also banned in France last year for allegedly selling dangerous and counterfeit products. The post-pandemic slowdown in online sales exacerbated all that pain, and the embattled company's founder and CEO Piotr Szulczewski stepped down this February.
His successor, former Foot Locker executive Vijay Talwar, lasted a mere seven months before resigning in early September. Joe Yan, an operating partner at Wish's investor GGV Capital, is now serving as its interim CEO.
Image source: Getty Images.
Is there any hope left for Wish, one of the most downloaded shopping apps in the world at the time of its IPO? Or will its stock sink deeper below the crucial $1 threshold and eventually be delisted?
What happened to Wish?
Wish initially differentiated itself from Amazon and other online retailers by selling much cheaper products. But it actually accomplished that by sourcing most of its products from Chinese sellers.
That business model had three glaring weaknesses. First, it took a long time to receive products and process returns. Second, lax quality control allowed unscrupulous merchants to sell low-quality and counterfeit products. Third, other cross-border platforms -- including Amazon's third-party marketplace, Alibaba's AliExpress, and Pinduoduo's Temu -- enable Chinese merchants to sell their products overseas. Moreover, those three larger rivals can access logistics networks that are more efficient while maintaining tighter quality control than Wish.
OTC: WISH
Key Data Points
At the time of its IPO, Wish served over 100 million monthly active users (MAUs). But that figure fell to 44 million at the end of 2021 and dwindled to just 23 million by the second quarter of 2022. Its number of last-12-month (LTM) active buyers also plummeted from 64 million at the end of 2021 to 20 million in the second quarter of 2022. Those steep declines suggest Wish's logistics and quality control issues are preventing its shoppers from returning.
How bad was the damage?
Wish's revenue rose 34% in 2020 but fell 18% to $2.09 billion in 2021 and dropped 77% year over year to $323 million in the first half of 2022. Analysts expect its revenue to decline 66% to $716 million for the full year.
Its gross margin contracted from 63% in 2020 to 53% in 2021, then slumped to just 33% in the first half of 2022. It mainly attributed that compression to its "lower marketplace profitability" as it readjusted its prices, recognized a higher mix of revenues from its lower-margin logistics business, and offered shipping subsidies and other loss-leading perks to its higher-quality merchants.
As Wish's top-line growth decelerated, its management reined in its marketing expenses to stabilize its losses. That's why its net loss narrowed from $745 million in 2020 to $361 million in 2021, then narrowed year over year from $239 million to $150 million in the first half of 2022. However, analysts still expect it to post a wider loss of $463 million for the full year.
That gloomy forecast is likely based on former CEO Vijay Talwar's plans to ramp up Wish's marketing spending in the second half of the year. It's unclear whether Wish's next CEO will stay on that path, but the company likely needs to launch fresh marketing campaigns to stabilize its ongoing loss of MAUs.
Could Wish be a deep value play?
Wish won't go bankrupt anytime soon. It ended the second quarter with $947 million in cash, cash equivalents, and marketable securities. That's significantly higher than its current market cap of about $550 million.
Wish's low debt-to-equity ratio of 0.5 also gives it some room to raise more cash, but it could struggle to secure favorable rates in this market. It's also trading at less than a multiple of 1 to this year's sales -- potentially making it a viable takeover target for a larger e-commerce company like Amazon, which reportedly tried to buy Wish for $10 billion before its public debut.
However, there's also a strong chance that Wish's MAUs will continue to decline as it becomes even less relevant against Amazon, AliExpress, Temu, and other cross-border marketplaces. That competition will force Wish to ramp up its marketing expenses again -- which would then accelerate its demise with widening losses.
I might consider Wish a deep value play if it brings in a visionary CEO who offers real long-term solutions for saving its business. But until that happens, I don't think there's any hope left for Wish in this bear market that has already thoroughly mauled most of the e-commerce leaders.
