What happened
Shares of ContextLogic (WISH +0.00%) shot up as much as 31.3% this week, according to data from S&P Global Market Intelligence. The company, which runs the Wish e-commerce website, was upgraded as a buy from Citron Research, the well-known short-selling group.
As of this writing, shares are up 18.8% so far this week. However, the stock is still down 97% since going public in late 2020.
So what
Citron Research is an analyst group that has been covering stocks for almost two decades. It has a great track record of exposing fraud at companies and is not afraid to get into public conflict over their ideas. However, recently it posted a bullish note on ContextLogic by way of a Twitter thread, saying that it has become an "asymmetrical" opportunity.
The thesis to buy shares is unique. Wish is a discovery-based e-commerce platform that allows people to find cheap goods produced in Asia. This mode of shopping has not yet caught on in North America, with Wish's sales growth turning negative throughout 2022.
However, Citron thinks the stock can provide an opportunity for investors due to the fact that Temu -- one of its Chinese competitors -- ran two Super Bowl ads and is now dominating the smartphone app store rankings. The idea is that the growth of Temu will see spillover effects into demand for Wish's application. So far this hasn't occurred, with Wish ranked 94th in downloads on the Apple App Store shopping category (behind Gap), while Temu stands tall at No. 1.
Wish also has $832 million in cash on its balance sheet, no debt, and a market cap of $500 million. The market does not believe Wish is going to make it much further as a public company. If it stays alive, it could provide tons of upside for shareholders.
OTC: WISH
Key Data Points
Now what
My take? You should either stay away from Wish stock or take a minimal position if interested in buying some shares. Wish's revenue declined 66% last quarter to $125 million, leading to an operating loss of $128 million just in the three months ending in September 2022. This is a company struggling mightily at the moment, which should give investors pause about its long-term prospects, regardless of what one group of investors said.
Sure, ContextLogic may have $832 million in cash and a market cap of $500 million, but it is burning through that cash quickly each quarter.
