ContextLogic Needs Multiple Quarterly Wins to Make It a Buy

Daily Trade

The shining momentum for ContextLogic (NASDAQ:WISH) came and left in a hurry in June. Meme traders, where traders depicted stock buys with an image and a few words, lifted WISH stock. After ContextLogic posted results on August 12, any positive momentum all but evaporated. That is bad news for speculators, who thrive on trading volume.

The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.

Source: sdx15 / Shutterstock.com

What events have hurt ContextLogic’s prospects and what will it mean for the rest of the year?

WISH Stock Hurt by Bad News

On July 2, WISH announced that its Chief Financial Officer, Rajat Bahri, would resign. Founder and Chief Executive Officer Piotr Szulczewski said:

“During his four and a half years as our CFO, Rajat has been integral in scaling the company globally, leading us through our initial public offering last year and driving revenue growth.”

Unfortunately for shareholders, the IPO is the only notable achievement from the CFO. By leaving so soon afterwards, the departing CFO is signaling potential weakness ahead.

Bulls may interpret the departure differently. Ex-CFO Rajat does not have the expertise needed to take ContextLogic to the next level. The CFO joined WISH after Cisco Systems (NASDAQ:CSCO) acquired Jasper Technologies in 2016. The press release stated that Rajat is leaving for another opportunity.

Investors may look at Square’s (NYSE:SQ) CFO departing as a guide. Sarah Friar worked at Square from 2012 to 2018. When she led the company to an IPO in 2015, she became the CEO of a smaller technology company. Since her departure, SQ stock has performed well. It continues to rise.

Stronger Management Team

Although Q2 results will not show it, ContextLogic’s appointment of Jacqueline Reses as Executive Chair is a positive development. Reses will remain on the Board of Directors while leading the company’s commercial functions. She is responsible for “customer experience, brand communications, strategic partnerships and Wish’s organizational growth.”

Reses has a strong record of accomplishment of delivering on commercial success. Wish needs an energetic leader to implement its long-term growth strategies. Before working at Square, Reses was the Chief Development Officer at Yahoo. She was responsible for building partnerships, handling acquisitions and investments. Her experience is exactly what WISH needs to grow from here.

The second quarter will not reflect the new management team’s capabilities just yet. In the quarter, WISH posted revenue falling by six percent to $656 million. Core Marketplace fell by the most, down by 32% to $378 million. Its ProductBoost segment, which rose by 11% year-over-year, is too small to offset the overall results.

CEO Piotr Szulczewski commented on the results:

“We expect our focus on enhancing product quality and selection, providing an unmatched fun and entertaining shopping experience, and improving the performance of the app.”

This initiative will help bring back users, but the company has an uphill battle ahead. The markets are envisioning a post-pandemic world where offices are open again. With workers not at home shopping on Wish, ContextLogic may spend money enhancing its site. This doesn’t necessarily translate to higher site traffic though.

The CEO said the improved product offering “will drive new user growth, retention and profitability over the long term.” Investors are skeptical that ContextLogic will reaccelerate its revenue. Cautious shareholders should wait for revenue to grow and for monthly active user figures to increase before adding to their position.

Opportunities Limited on WISH Stock

Investors who were too bullish on WISH shares may want to book losses instead of waiting for another quarter. The recent results surprised the market. Investors will lose faith in the management team’s ability to deliver.

Last year in the second quarter, Wish benefited from an expansion in revenue. People started shopping online and searching for goods at the height of the pandemic. This year, the pandemic fears are winding down. Amazon’s (NASDAQ:AMZN) weak results and Roku’s (NASDAQ:ROKU) decelerating user growth are risks for the sector at large.

Wall Street analysts quickly lowered their expectations on ContextLogic. The average price target is below $10.00 (per Tipranks). Almost a dozen analysts either reiterated a “hold” or downgraded their rating to a “sell.” ContextLogic must post at least two consecutive quarters of strong revenue growth. Only then would betting on its rebound pay off.

On the date of publication, Chris Lau 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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. 

Articles You May Like

It’s time now to focus on Nvidia, Treasury bonds and a bullish finish to 2024
5 Moonshot Stocks to Buy for 2025 
Data centers powering artificial intelligence could use more electricity than entire cities
Autonomous Vehicles: Why 2025 Will Usher in the Self-Driving Car
Snowflake’s stock flies higher as software company’s outlook impresses