Wish.com parent company ContextLogic (NASDAQ:WISH) stock has been a disaster since its initial public offering.
Wish went public at an IPO price of $24 in December 2020. The stock rallied as high as $32.85 in February during the Reddit WallStreetBets trading fury. Since then, the stock has dropped like a rock. ContextLogic will open this morning barely north of $5.
In theory, e-commerce is an excellent long-term investment opportunity. It’s worked out very well for Amazon.com (NASDAQ:AMZN) stock investors.
But before you buy the dip in WISH stock, make sure you understand the company’s several red flags.
WISH Stock Red Flags
In July, eMarketer estimated worldwide retail ecommerce sales will grow 9% to 12.7% annually through 2025. By that year, eMarketer estimates ecommerce sales will represent 24.5% of total global retail sales.
The pandemic in 2020 may have facilitated the long-term transition to online sales. For example, Amazon put up huge growth numbers in 2020. Amazon’s revenue was up 37.6% last year, while net income jumped 84%.
Even up against difficult year-over-year comps, Amazon’s revenue was up 27.1% and net income was up 48.3% last quarter.
In the same quarter, Shopify (NYSE:SHOP) revenue was up 56.7%, eBay (NASDAQ:EBAY) revenue was up 14.1% and JD.com (NASDAQ:JD) revenue was up 26.2%.
Meanwhile, ContextLogic reported a 6.4% drop in revenue and a $111 million net loss in the second quarter.
Perhaps more discouraging was the 22% drop in monthly active users in the quarter. Looking ahead, management told investors quarter-to-date revenue was trending down 40% in the third quarter compared to the second quarter.
Management also said it expects to pull back on customer acquisition spending while it focuses on improving product quality, latency and other marketplace issues.
A rising tide typically lifts all boats, but in the ecommerce space, WISH stock seems to be sinking as the waters rise around it.
Analyst Takes
Needless to say, analysts weren’t impressed with ContextLogic’s quarter. Credit Suisse analyst Stephen Ju said ContextLogic’s numbers will likely continue to be lackluster as it undergoes its investment cycle.
“These steps will not yield immediate results and WISH is likely in for a multiyear turnaround – we do not anticipate user growth to really recover until 2023 and for MAUs to return back to 2020 levels until 2026,” Ju said.
Given that outlook, I’m shocked to see Ju has maintained his “overweight” rating for WISH stock. He also has a very optimistic $19 price target.
Here’s the thing. Ecommerce investors have plenty of stocks to buy that are growing and will continue to grow over the next five years. They don’t need to wait around for ContextLogic to get its act together.
Bank of America (NYSE:BAC) analyst Michael McGovern also said there are no quick fixes for ContextLogic’s problems.
“The loss of users and decline in 3Q is well above our expectations, and retooling the business model is expected to take longer than we envisioned,” McGovern said.
Understandably, McGovern is not so generous with his coverage. He has an “underperform” rating and $6 price target for WISH stock.
Better Alternatives
Maybe ContextLogic will ultimately turn around its business. Maybe it will be back on a growth trajectory by 2025 or 2026. But as I’ve said before about betting on GameStop (NYSE:GME), you don’t need to gamble on a ContextLogic turnaround.
Amazon is already growing, and it’s the gold standard in ecommerce. If you’re looking for a higher-risk, high-growth ecommerce play with more potential upside, JD.com or Alibaba (NYSE:BABA) could be a better option.
Walmart (NYSE:WMT) is also a high-quality blue-chip retail stock that grew ecommerce sales by 6% last quarter.
Maybe you’re into WISH stock purely because of social media FOMO. Fortunately, there are plenty of high-quality Reddit “stonks” out there as well.
Hostess Brands (NASDAQ:TWNK), Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) are just three examples of profitable, reasonably valued stocks that have recently been trending on the WallStreetBets subreddit.
On the date of publication, Wayne Duggan held a long position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.