Shares of ContextLogic (WISH) have been in freefall this year, with the stock down more than 77% year-to-date. Although the stock trades at a discount to its peers, the uncertain macroeconomic conditions add further gloom to the company’s growth prospects. So, would it be wise to invest in the stock now? Read on to learn our view….
Mobile e-commerce company ContextLogic Inc. (WISH) has fallen 77.6% in price so far this year and 82.4% over the past year to end its last trade at $0.70. The stock is trading 83% below its 52-week high of $3.99, which it reached on November 29, 2021.
WISH’s forward price/sales of 0.84x is 2.8% lower than the industry average of 0.87x. Forward Price/Book of 0.92x is 64.8% lower than the industry average of 2.61x.
In the third quarter, the company’s monthly average users (MAUs) fell 60% year over year to 24 million. LTM (Last Twelve Months) active users also fell 65.2% year-over-year to 16 million. The company’s marketplace revenue fell 77% year-over-year to $51 million, while logistics revenue fell 50% year-over-year to $74 million.
WISH’s third-quarter revenue decline can be attributed to lower marketing spend amid the high-inflation, rising-interest rate environment and the new pricing practices implemented by the company, which were fully effective last quarter. The company expects an adjusted EBITDA loss of between $90 million to $110 million in the fourth quarter.
With inflation still uncomfortably high and the Fed’s final interest rate expected to be higher, the economy is expected to enter a recession by the start of next year. This is expected to significantly affect consumer spending, further straining WISH’s finances.
Furthermore, the company also received a letter of default from NASDAQ on October 28, 2022, as the NASDAQ listing rule requires listed securities to maintain a minimum bid price of $1 per share.
Here’s what could affect WISH’s performance in the coming months:
For the fiscal third quarter ended September 30, 2022, WISH’s revenue fell 66% year-over-year to $125 million. Its adjusted EBITDA loss increased 216.7% year over year to $95 million. The company’s total assets fell 29% to $911 million, compared to $1.28 billion for the fiscal year ending December 31, 2021.
Gross profit fell 79.6% year over year to $34 million. Net loss also increased 93.7% year-over-year to $124 million. Additionally, loss per share increased 80% year-over-year to $0.18.
Unfavorable analyst estimates
WISH’s EPS for fiscal 2022 and 2023 is expected to remain negative. Revenue for fiscal 2022 is expected to fall 71.2% year-over-year to $600.02 million.
WISH’s trailing 12-month leveraged FCF margin is negative, compared to the 1.35% industry average. Likewise, its trailing 12-month net income margin is negative compared to the industry average of 5.12%. Additionally, the trailing 12-month EBITDA margin is negative compared to the industry average of 11.05%.
POWR ratings reflect a bleak outlook
WISH has an overall F-rating, which corresponds to Sell in spring POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted optimally.
Our proprietary rating system also evaluates each stock based on eight different categories. WISH has a D grade for quality, consistent with its poor profitability.
It has a D grade for sentiment, in sync with the weak analyst estimates.
WISH is ranked #54 out of 58 stocks in F-rated Internet industry. click here to access WISH’s growth, value, momentum and stability rankings.
The bottom line
WISH is trading below its 50-day and 200-day moving averages of $0.79 and $1.54, respectively, indicating a downtrend. Despite trading at a cheap value, consumer-facing businesses like WISH are expected to be hit hard by the expected recession next year.
Analysts are bearish on WISH’s outlook. Given the company’s weak finances and low profitability, the stock is best avoided now.
How ContextLogic Inc. (WISH) Works Stack up against their peers?
WISH has an overall POWR rating of D, which equates to a sell rating. Therefore, one should consider investing in other Internet stocks with a B (Buy) rating, for example Yelp Inc. (YELP), trivago NV (TRVG), and Expedia Group, Inc. (EXP).
WISH stock was trading at $0.70 per share Thursday morning, up $0.02 (+2.51%). So far this year, WISH has fallen -77.49%, against a -14.29% rise in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Since he was in primary school, Dipanjan was interested in the stock market. This led to him taking a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing new trends in the financial markets.
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