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After some stellar performances during a pandemic stricken 2020, global e-commerce stocks, including Amazon.com (AMZN), have generally underperformed the broader market so far in 2021.
However, e-commerce retailer ContextLogic (WISH) stock ranks among the worst decliners this year as it prints an 82% year-to-date fall at the time of writing. I am neutral on WISH stock. (See Analysts’ Top Stocks on TipRanks)
ContextLogic runs the wish.com online store and associated mobile applications across the world. Retail store reopenings and easing lockdowns combined to steal business from online stores, but that doesn’t explain WISH stock’s painful decline in 2021.
Contrarian investors looking for bargain buy-the-dip ideas to play for 2022 are very much likely to study WISH stock during this festive season. Could the recently listed e-commerce company rise above its current challenges and rise again in the new year?
A critical look at the company’s problems and proposed solutions could help answer the above million-dollar question.
ContextLogic (WISH) Stock’s Problems in 2021
ContextLogic suffered a massive exodus of users from its platforms in 2021.
Despite a general decline in e-commerce traffic globally as physical stores reopened their doors and people left their homes after months in COVID-19 pandemic-induced lockdowns, wish.com had unique challenges of its own.
Users complained of product quality issues and unreasonably lengthy returns processing turnaround times before an application ban in France. Quality control issues may be linked to an influx of cheap Asian vendors whose products’ quality fell far below European market standards. Some products have been labeled dangerous for French consumers lately.
Popular mobile app stores, including Alphabet’s (GOOGL) Google Play Store responded by removing the WISH app from the affected market. Search engines followed suit by blocking search traffic to the company’s platform.
Before the France fallout, ContextLogic had taken drastic measures to address quality control issues by actively assessing vendors, offering financial incentives to attract high-quality vendors, and establishing logistics services to address customer concerns.
That said, average active buyer numbers have been declining throughout the year. The company suspended advertising expenditures to limit cash bleed and contain losses as it dealt with its issues, and customer churn worsened during the third quarter.
User traffic decline could be worse for the fourth quarter of 2021.
Website Traffic to the Wish Store Spells Disaster
Amazingly, a recent visit to the wish.com online store on the web shows most items as “out of stock,” which leaves me wondering what the company was selling throughout the festive season if its web store looks empty.
Anyway, activity should be better on the Wish mobile apps. Products were definitely available on some nicely branded vending machines.
That said, I am very much concerned about the potential decline in user numbers during the fourth quarter of 2021.
Investors already know that ContextLogic has been losing users on its e-commerce platform. The company used to serve over 100 million monthly active users (MAUs) before going public in December 2020. The number dropped to around 60 million during the third quarter of this year.
The decline in the wish.com user base is startling.
A quick check on wish.com’s recent website traffic using the TipRanks’ web traffic analysis tool shows a serious drop in wish.com and merchant.wish.com websites’ traffic so far during the fourth quarter of 2021.
In November 2020, there were about 158 million visits to wish.com. The number declined by nearly 57% year-over-year to around 68.1 million for November 2021.
Quarter to date numbers (October and November numbers) show a similar 56% annual decline from 300 million visits estimated for the same months last year to just around 132.2 million. This is despite the fact that people reportedly started shopping early for this year’s festive season due to persistent global supply chain challenges.
ContextLogic seems to be in trouble still. In comparison, Amazon website traffic declined by 26.5% for November and is down 28.6% for the first two months of the fourth quarter.
Opportunities for WISH Stock Recovery in 2022
To curb customer churn, ContextLogic introduced a “buy now, pay later” (BNPL) option and shoppable videos from which users can purchase an item from a demo video, and these innovations target attracting new shoppers and merchants to the wish.com platform.
WISH is offering financial incentives to attract quality vendors. It’s offering discounts and coupons to users too. If these strategies work, business volumes may recover, but profitability may suffer in the short term.
The company also expanded its own proprietary logistics network to help reduce delivery delays and improve logistics lead times. Logistics revenue has been growing lately.
That said, the company still revealed that sales for October were down by about 20% despite an early holiday shopping season. Revenue declines could still persist into 2022.
Fortunately, WISH had more than $1 billion in cash resources on its balance sheet in September. The company seems to have adequate liquidity to see it through its business re-configuration strategy next year.
Most concerning is the company’s CEO and Founder Piotr Szulczewski’s announced premature departure in November. Although Piotr will retain a Board seat, the founder’s leadership would have been essential during a turnaround strategy in 2022.
Most noteworthy, Piotr’s departure right now makes him ineligible to receive his allocation of 10 million shares of the company received in a stock incentive plan when the company went public a year ago. The shares could have been vested if he remained with the company until December 2022.
I find it concerning that a company’s founder is ready to jump ship and leave millions on the table, just as the company needs guidance the most. Could the company’s problems be so profound and severe that the founder feels overwhelmed?
WISH will reverse the $16 million it had recognized under stock-based compensation expenses related to the outgoing CEO’s forfeited benefit.
ContextLogic stock could potentially recover some lost value in 2022 as it reinstates advertising spending, improves logistics challenges, and improves offered product quality.
That said, the company needs to find a new leader urgently, and pray that its French problem won’t spill into other European markets.
WISH’s generated 38% of its market revenue from Europe during the past quarter. The region remains a significant revenue-generating market, and it will be too expensive to lose a key market.
Until the company stabilizes its customer churn, begins to grow user traffic, and stabilizes its recently elevated cash burn rates, WISH stock could face more downward pressure in the near term.
For contrarian investors confident in the company’s turnaround prospects, this could be the best time to start deploying capital and be greedy when others are still fearful.
TipRanks’ Smart Score
That said, the TipRanks Smart Score ranking system predicts that WISH stock could still underperform the market as of right now.
Wall Street’s Take
Wall Street analysts give WISH stock a Moderate Sell rating based on four Holds and two Sell ratings assigned during the past three months.
The average WISH stock price target of $4.92 implies a potential 46.4% upside over the next twelve months.
Disclosure: At the time of publication, Brian Paradza did not have a position in any of the securities mentioned in this article.
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