Is Wish parent ContextLogic’s stock on the mend after muted IPO?
Costlier shipping and investors’ preference for its rivals could prove challenging for discount online retailer Wish’s owner, analysts say.
- ContextLogic’s share performance has improved despite a tepid start
- Its CEO urged a long-term view despite near-term market volatility
- An investor believes there is growth potential in serving less-affluent consumers
- But possible headwinds include higher costs, a slowdown in sales, and competition
ContextLogic wobbles in opening week
Days after an underwhelming trading debut, ContextLogic Inc, parent of shopping app Wish, managed to stage a recovery.
Last Wednesday (16 December), the Nasdaq-listed stock fell 16.5% from its initial public offering (IPO) price of US$24 to finish at US$20.05.
Since then, it has rebounded, gaining 11.1% on Thursday, before rising another 5.8% to finish the week at US$23.55. Its latest close gave a market capitalisation of US$16 billion.
Why did ContextLogic’s debut disappoint?
ContextLogic’s first-day performance was a change of pace from a recent slew of impressive debuts, including DoorDash, Airbnb, and Snowflake.
The tepid reception could have been influenced by the plunge in shares of DoorDash and Airbnb last week, opined investment bank Renaissance Capital’s Kathleen Smith. Those two stocks sank shortly after popping out of the gate, which taught investors ‘a lesson’ about buying at the open, she said.
In addition, Wish faces stiff competition from US and Europe players. Some investors compare it to e-commerce giant Amazon.com, which has a similar growth rate. ‘If I can own Amazon, why should I own Wish?’, Smith posited.
Based on its IPO price, ContextLogic would be trading at four times its 2022 sales forecast Bloomberg reported. That’s higher than Amazon, which trades at 3.6 times its 2021 sales estimates, and eBay at 3.4 times the same metric.
Covid-19 tailwinds negated by supply-chain disruptions
The San Francisco-based group has been riding on a pandemic-fuelled surge in web shopping, although it also faced supply-chain disruptions during the outbreak.
From January to September 2020, revenue grew 32% year-on-year to US$1.7 billion, but net loss deepened substantially to US$176 million from a year-ago US$5 million loss.
Consumer data firm Cardify’s research team wrote that Wish has seen increased basket sizes, which suggests its users are now spending more.
But analysts also pointed out that Wish could be losing momentum despite spending heavily on advertising to attract shoppers. A hike in US-China postal rates may increase shipping costs for the company as well.
Moreover, Wish generates the bulk of its sales from impulse buyers instead of shoppers searching for specific items, which could be a problem down the road, according to Forrester analyst Sucharita Kodali.
What’s next for ContextLogic and Wish?
ContextLogic CEO Peter Szulczewski said short-term market volatility should not detract from the firm’s long-term core focus of catering to value-conscious consumers.
It is investing in logistics, scaling the team worldwide, seeking new revenue streams, and improving its customer experience, said Szulczewski.
Meanwhile, Wish investor GGV Capital’s managing partner Hans Tung pointed to the success of brick-and-mortar dollar stores, which he says underlines ‘more room’ for the app to grow in the US as well as in emerging markets.
That said, Forrester’s Kodali believes Wish may not be a direct comparison to dollar stores, which sell essential items to regular customers.
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