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Why did ContextLogic take a massive dive this week?

The parent company of e-commerce app Wish saw its stock price take a huge hit after law firm Hagens Berman urged investors to file loss claims ahead of an impending deadline.

Source: Bloomberg
  • ContextLogic Inc (NASDAQ: WISH) share price encountered a roadblock this week, as it sunk 16%
  • The decline came after US law firm Hagens Berman issued a press release urging investors who have suffered significant losses since purchasing shares during WISH’s IPO to come forward
  • The lawsuit’s main complaint alleges that ContextLogic overstated its business performance metrics and financial prospects
  • These disclosures allegedly caused the WISH’s share price to ‘decline sharply’
  • Ready to trade ContextLogic shares but only want to put up a fraction of the cost? Contracts for Differences (CFDs) allow you to do that. Open a trading account with us today.

WISH share price: What’s the latest?

ContextLogic shares have declined nearly 16% since US law firm Hagens Berman urged investors to submit their loss claims earlier this week, ahead of a 16 July 2021 plaintiff deadline.

‘A securities class action is pending and certain investors who purchased shares in the company's December 2020 IPO or on the open market may have valuable claims,’ Hagens Berman said in a press release on Tuesday (29 June 2021).

The complaint alleges that ContextLogic's initial public offering (IPO) registration documents materially overstated the company's business metrics and financial prospects. Specifically, the IPO registration documents touted ContextLogic's exponential monthly active user (MAUs) growth, claiming its then 108 million MAUs was a key driver of revenue growth.

According to Hagens Berman, by the time of its December 2020 IPO, ContextLogic's MAUs had declined materially and the IPO registration documents failed to disclose this known trend reasonably likely to materially impact ContextLogic's profitability.

Then on 08 March 2021, the company reported what the media release termed as ‘disappointing 4Q 2020 and full year 2020 results’. WISH disclosed that its MAUs had already ‘declined 10% YoY during Q4 to 104 million’.

Following that, on 12 May 2021, ContextLogic announced poor Q1 2021 results, including another 7% drop in MAUs to just 101 million, and the company slashed sales guidance for Q2 2021.

Hagens Berman alleged that these disclosures caused WISH’s share price to decline sharply. The stock is down 37% year to date.

‘We're focused on investors' losses and proving ContextLogic overstated MAUs and concealed known trends,’ said Reed Kathrein, the Hagens Berman partner leading the investigation.

What are analysts’ latest price targets and ratings?

ContextLogic shares are down 8% on Thursday (01 July 2021) alone.

The latest analyst sentiments published by MarketBeat show a consensus rating of ‘buy’ and average price target of US$22.92, which equates to a 86.5% upside potential from the stock’s last traded price of S$12.29.

The latest investment thesis on the stock came from Credit Suisse analyst Stephen Ju, who maintained a ‘buy’ call while cutting his price target to US$24 from US$31.

His lower price target was predicated on the company’s delayed growth trajectory for the second half of 2021.

Stifel analyst Scott Devitt also lowered his firm's price target on ContextLogic to US$12 from US$20 following the company’s self-stated ‘better-than-expected’ quarterly results, while reiterating a ‘hold’ rating.

The analyst readjusted his intermediate and long-term growth assumptions for the platform’s core marketplace revenue, citing the company’s decision to reduce marketing investments in certain geographies and his projections for slower MAU growth than previously stated.

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