Recently IPO’d ContextLogic (NASDAQ:WISH), owners of e-Commerce website Wish.com, has not been great for investors chasing a short-term pop. WISH stock went public at $24 a share and immediately closed its first trading day at $20. The stock had an initial run-up to $32 but has been on a downward trend ever since landing at an all-time low of $8 per share.
WISH stock is still trading at a more than 50% discount to its IPO price. I would like to examine if now would be a good entry point for long-term focused investors.
Wish.com Has a Strong Long-term Value Proposition
So what exactly is Wish.com? Wish is an online e-commerce focused on finding extremely affordable items. The site operates on a mobile-first and discovery-based model in the sense that its core shopping experience is built upon a highly personalized product feed. This means when a user enters the platform it sees an array of products suggestions. These suggestions are driven by the company’s proprietary algorithms and big data technology.
The company has been very good at using the personalized product feed to create “purchase intent”. This the opposite of traditional e-commerce websites that rely on pre-determined purchase intent where users would go into a site with a pre-conceived idea of what they want to buy. They may get some suggestions from the site but the main driver is still the initial purchase intent.
ContextLogic’s approach encourages users to discover products and purchase items they may not have initially thought about. It’s similar to how people would just hang around or walk around in a mall and then end up with a bevy of items that caught their eye. The company aims to re-create online the “treasure-hunting” or “bargain-hunting” experience of stores like TJ Maxx (NYSE:TJX) or Marshalls.
There are clear signs that this approach is resonating with consumers. The company reports that over 70% of its sales do not involve a search query. ContextLogic reports that users spend 9 minutes per day on the platform. This allows plenty of time for the platform to present users with products they may enjoy. It also implies that browsing through Wish.com is an enjoyable habit.
The key to enabling this sort of impulse purchase is having items that are extremely affordable. Most of the company’s merchants are based in China giving the platform a wide array of quality products at cheap prices. While this certainly has some downsides, I believe that ContextLogic has found itself a suitable niche that could prove to be extremely lucrative long-term.
ContextLogic Growth Momentum is Continuing
ContextLogic’s Wish app has been the most downloaded global shopping app based on data by Sensor Tower. As of 2021, the site boasts roughly 101 million active users of which 61 million are considered as “Active Buyers”. The company grew its Q1 2021 revenue by 75% from $440 million in Q1 2020 to $772 million.
Breaking down this revenue growth Marketplace Revenue grew by a healthy 37% from $384 million to $527 million year over year. The big revenue driver for this quarter though is the company’s logistics business which grew a massive 388% from $56 million to $245 million. This primarily due to merchant adoption of the company’s logistics offering. Having more merchants and growing this side of the business is incredibly important as the company realizes greater economies of scale. We saw how important this program was to Amazon (NASDAQ:AMZN) as it grew its own FBA offering. The fact that merchants have adopted Wish’s offering is a good sign.
Despite the great headline revenue number, Wall Street has been disappointed with ContextLogic’s quarter result. The company reported a Q1 loss of $0.21 per share, a loss greater than consensus estimates. The company’s EBITDA loss increased from $51 million to $79 million. However, this sort of thinking is incredibly short-sighted. Rightfully so, any Wall Street short-sellers were swiftly punished by Reddit and the meme trading crowd.
Investor Takeaway
In my opinion, ContextLogic has a clear value proposition and a path forward to continue its rapid growth. The company’s platform appeals to human shopping psychology and fulfills a need once occupied by brick and mortar malls. Furthermore Wish stock is trading at a very reasonable Price to Sales Ratio of 2.6x. The company is a bit of a speculative purchase but I believe there is a place in a growth-oriented portfolio for Wish stock.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
