There appears to be no shortage of e-commerce players out there trying to be the next Amazon (NASDAQ:AMZN). It’s a futile effort, of course, and there will likely never be another Amazon. So why not create a niche that doesn’t compete directly against other e-commerce giants? ContextLogic (NASDAQ:WISH) seems to have gone that route by offering up a comprehensive e-commerce website that targets lower income individuals, and following an initial public offering in December, all eyes have been on WISH stock.
ContextLogic operates under the brand name Wish and provides a mostly mobile shopping experience:
“Wish provides a discovery-based shopping experience that mirrors how consumers have shopped for years in brick-and-mortar stores. Through increased interaction, our technology gets to know our users, and curates a product feed that is personalized to them. Our merchants are continually expanding their product selection to provide more diversified products at highly competitive prices.”
Founded in 2010, Wish is now active in over 100 countries and generated $2.5 billion in gross revenues in 2020 with an estimated 107 million active monthly users.
WISH Stock Investment Premise
The retail e-commerce market is very large and growing. It was estimated at $4.3 trillion in 2020 and is expected to grow to nearly $6.4 trillion by 2024. The Wish business model focuses on value-conscious consumers and targets household incomes under $75,000 annually, of which there are numerous around the globe.
Wish generates about 46% of its revenue from Europe, 40% from the U.S. and 14% from other regions. Revenues are also diversified by sources as 72% comes from the core marketplace, 20% from logistics services, and 8% from advertising.
Logistics Platform
WISH operates a comprehensive proprietary logistics platform with over 90% of packages being shipped through its system. About half of packages being shipped utilize its primary ancillary services under this platform. These include first mile collection, bundling, transportation, warehousing and last mile delivery. WISH offers these services to many brick-and-mortar retailers, which provides these stores with a turn-key digital storefront solution. There are over 50,000 local merchant partners on the platform.
In Q1 2021, delivery times and delivery-related refunds were both at all-time lows, with delivery-related refunds down 43%. Wish Local hit 7% of Orders in 1Q, which is key metric because local orders can generate much higher margins.
WISH Stock Financials
Although the company has been around since 2010, WISH is still a growth company in expansion mode that generates significant operating losses. The company generated $2.5 billion in revenues in 2020, a 31% increase from $1.9 billion in 2019. Operating losses increased to $631 million in 2020 from $144 million in 2019.
After WISH went public in December 2020, the company had just under $2 billion in cash and marketable securities, down to $1.6 billion by the end of the first quarter. The company will continue to generate operating losses in 2021 as well as likely into 2023. However if the business continues to scale, free cash flow may be positive as soon as next year.
Conclusion
WISH stock sells at significant discount to other ecommerce players on price-to-sales basis. WISH sells at about 2x 2021 estimated revenues while the rest of the industry sells in the 3-5x range. I believe the company has enough growth triggers to keep the momentum going until critical scale can be reached. If a long-term financial target of 20-30% EBITDA (earnings before interest, taxes, depreciation and amortization) margins can be reached, then WISH stock may experience substantial gains in the next 3-5 years.
When all is said and done, buying a business today for $6 billion when you could have bought it 6 months ago for $18 billion seems to make good sense. But in this bull market, investors seem to like buying things when they’re more expensive instead of cheap, so what do I know.
On the date of publication, Tom Kerr did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Portfolio Manager at Rocky Peak Capital Management. Prior to that he was Chief Investment Officer and Director of Research of SGL Investment Advisors, and has served in a number of positions at other investment related organizations. Mr. Kerr has also been a contributing writer to TheStreet.com, RagingBull.com and InvestorPlace.com. He’s a CFA charterholder and obtained a B.B.A. in Finance from Texas Tech University.