Mobile e-commerce company ContextLogic Inc. (WISH) operates a discovery-based shopping platform, which connects merchants’ products to users based on user preferences. The San Francisco-based company is planning to restructure its business and refocus its operations to support sustainable long-term growth, better align resources, and improve operational efficiencies. Following the anticipated implementation of the restructuring by the end of its fiscal year 2022, WISH expects to achieve in the range of $32 million – $37 million in annualized cost savings.

WISH’s shares have slumped 87.8% over the past year and 29.9% year-to-date to close the last trading session at $2.18, indicating investor pessimism. Adding to investors’ concerns are the company’s declining revenues and its app’s loss of users.

For the fiscal fourth quarter, ended Dec. 31, 2021, its monthly active users (MAUs) decreased to 44 million, from 104 million in the prior-year quarter, while LTM active buyers declined to 38 million compared to 64 million in the year-ago period. “These numbers tell me we need fresh thinking to guide us back to the growth that we know is possible,” CEO Vijay Talwar said in the company’s earnings call. The stock has retreated 5.6% in price since the company’s earnings release on March 1.

Here is what could shape WISH’s performance in the near term:

Poor Profitability

WISH’s EBITDA margin and net income margin of negative 16.88% and 17.31%, respectively, are substantially lower than the 12.66% and 6.61% industry averages. Also, its levered FCF margin is negative 40.08% compared to the 4.87% industry average.

Moreover, WISH’s negative 39.13%, 28.14%, and 23.48% respective ROE, ROA, and ROTC compare with the 17.20%, 6.09%, and 7.87% industry averages.

Disappointing Financials

For its fiscal fourth quarter, ended Dec. 31, 2021, WISH’s total revenues declined 64% year-over-year to $289 million. Its net loss came in at $58 million, compared to $569 million in the prior-year quarter, while its net loss per share was $0.09, compared to $3.04 in the year-ago period. In addition, its cash and cash equivalents balance decreased 48.2% year-over-year to $1.02 billion, while its free cash flow stood at negative $50 million, compared to negative $25 million in the same period the prior year.

Bleak Top Line Growth Expectation

Analysts expect WISH’s revenues to come in at $219.67 million in the current quarter, ending March 31, 2022, indicating a 71.5% decline year-over-year. Furthermore, its revenue is expected to decrease 61% in the next quarter and 48.6% in the current year, ending Dec. 31, 2022. In addition, the negative $0.10 consensus EPS estimate indicates a 24.2% improvement from its year-ago value. However, its EPS is expected to decline 3.7% in the current year and is expected to remain negative at least  this year.

POWR Ratings Reflect This Bleak Prospects

WISH has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Momentum, which is consistent because the stock is currently trading below its 50-day moving average.

WISH has an F grade for Sentiment. Bleak analysts’ sentiments about the stock justify this grade.

Among  the 72 stocks in the F-rated Internet industry, WISH is ranked #50.

Beyond what I have stated above, one can view WISH’s grades for Stability, Growth, Value, and Quality here.

Bottom Line

Although the company plans to restructure its business, the return to profitability could be challenging given its depleted margins and customers’ return  to brick and mortar stores. Also, considering analysts’ bearish near-term expectations, we think it could be wise to avoid the stock currently and wait for significant improvement in the company’s prospects before investing in it.

How Does ContextLogic Inc. (WISH) Stack Up Against its Peers?

While WISH has an overall POWR Rating of D, one might want to consider investing in the following Internet stocks with a B (Buy) rating: Yelp Inc. (YELP), Travelzoo (TZOO), and Opera Limited (OPRA).

WISH shares fell $2.18 (-100.00%) in premarket trading Monday. Year-to-date, WISH has declined -30.55%, versus a -6.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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