Wish Stock Down 27% – Time to Buy WISH Stock?

Wish stock is down 27% this morning after the management shared downbeat comments about the firm’s outlook as part of its earnings call covering the second quarter of 2021.

During the three months ended on 30 June, Wish reported a 6% decline in its quarterly revenues, which landed at $656 million, primarily resulting from a 29% decline in its Marketplace Revenues while partially offset by a 126% advance in its Logistics segment compared to the same period a year ago. This top-line figure missed analysts’ estimates for the quarter by around 9%.

Meanwhile, net losses for the period accelerated significantly to $111 million or 17% of the firm’s revenues, up from a 2% negative net profit margin the firm had reported during the second quarter of 2020 while ContextLogic’s adjusted EBITDA moved to negative territory at minus $67 million compared to a positive $16 million figure Wish had reported during the same period last year.

Contrary to its expectations, the management team alerted that customer retention deteriorated during the quarter. Meanwhile, they emphasized that the company was already facing a tough comparative baseline in terms of revenue growth amid last year’s increased volumes prompted by pandemic lockdowns.

Moreover, the management stated that app installs and average time spent on the platform declined by 13% and 15% respectively during the second quarter reflecting a fading pandemic tailwind for the firm.

Moving forward, even though the company abstained from sharing revenue guidance for the third quarter of this year, the management said that they expected further declines in the firm’s quarterly top-line results while they expect to report a negative adjusted EBITDA of around $70 million.

With the price of ContextLogic stock moving to all-time lows, could this be an opportunity to buy some shares of the e-commerce company at a bargain? The following article takes a closer look at the price action and the fundamentals of the company to possibly answer that question.

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Wish Stock – Technical Analysis

The price of WISH stock has been consolidating lately as it has traded in a range between $7.5 and $15 per share for the past three months. The stock has been a popular ticker among the retail crowd amid its relatively high short float and daily trading volumes reflect the extent of that popularity as they jumped to almost 10 times the 10-day average in multiple occasions from May to June this year.

However, as of yesterday, the stock was trading almost 61% below its IPO price of $24 per share while it has retreated around 71% from its 52-week high of $33 per share.

Meanwhile, the chart above shows how the stock had been making lower lows prior to this morning’s pronounced sell-off while now both the Relative Strength Index (RSI) and the MACD have been plunged to negative momentum territory reflecting the extent of the damage that today’s drop is causing.

With the stock trading at all-time lows now, it would be a good idea to take a look at ContextLogic’s fundamentals to see if this might be an exaggerated move caused by brokers who might be dumping a sizable amount of shares as they no longer need to hedge against losses from the expiration of in-the-money options this Friday.

Wish Stock – Fundamental Analysis

Wish revenues had been growing steadily even before the pandemic, with the company’s top-line results moving from $1.1 billion back in 2017 to $1.9 billion in 2019 at a 31% compounded annual growth rate (CAGR).

Even though the pandemic did boosted the firm’s top-line significantly as sales jumped 33.6% at $2.54 billion, that growth was somehow in line with the average for the two preceding years.

Meanwhile, Wish has already generated revenues of $1.43 billion during the first six months of the year while analysts are expecting to see the firm’s top-line results landing at around $3.2 billion by the end of this year.

These estimates may not fully reflect the changes in the outlook discussed in this latest report and they will probably be revised lower to around $2.5 and $2.8 billion.

Perhaps more relevant, Wish’s gross margins have been deteriorating progressively in the past years, moving from 84% back in 2018 to 58.6% by the end of this second quarter.  As a result, operating losses, even on an adjusted basis, appear to be accelerating which is a bad sign for the firm.

However, Wish has no debt and has consistently grown its revenues even before the pandemic stroked. Therefore, with the firm currently trading at around 2.5 times its forecasted sales for the year, the valuation seems fairly attractive and this exaggerated sell-off could present itself as an opportunity to buy a company that might even become an acquisition target and that could deliver a sizable short-term gains once the market comes to its senses.

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