The ContextLogic (NASDAQ:WISH) share price fell off a cliff in aftermarket trading yesterday following its latest earnings release. The company (which operates under the name Wish) saw its stock fall by almost 20%. That’s certainly not a pleasant sight. And this latest drop has resulted in a 60% loss since its IPO last December. So what exactly happened? And is this a buying opportunity or a sign of trouble ahead? Let’s take a closer look.
The crashing Wish share price
Despite high hopes from investors, this was not a good quarter for the e-commerce platform. Over the last six months, revenue did manage to increase by double-digits. This strong growth in sales has been predominantly supported by the improvements being made to its logistics division. In fact, this segment has grown its revenue generation by 201% year-on-year.
But sadly, this overall revenue increase is slowing down due to falling user retention. The number of app installs and average time spent on the platform fell by 13% and 15%, respectively. Consequently, quarterly revenue generated by the core marketplace plummeted by 32% compared to a year ago. Meanwhile, with the rising costs of expanding its logistics network and increased advertising spending, net losses for the quarter surged from $11m in 2020 to $111m today.
The end result was a complete miss on analyst expectations for both revenues and expected losses. So, I’m not surprised to see the Wish share price plummet on the news.
What now?
As disappointing as these results are, I feel investors may have overreacted. The firm’s latest performance is being compared against a time when e-commerce was the only option available for non-essential retail therapy. Today, physical stores have reopened their doors. And as a consequence, the reliance on e-commerce has naturally started to fall. So, when comparing the latest sales figures to pre-pandemic 2019, they are actually significantly ahead.
Furthermore, the management team has already begun adjusting its strategy to focus more on apparel, home goods, and gadgets. These categories have historically performed better on the platform. So, by doubling down on what works, marketplace sales may begin to rise again moving forward. The positive effects of this new focus, combined with the drastic improvements to its logistic solutions, are expected to begin yielding tangible benefits by the second half of 2022. And if successful, I think the Wish share price could start climbing rapidly over the long term.
The bottom line
Seeing a fall in revenue is never fun, especially for high-growth stocks. However, whether there is a fundamental problem with the business or the drop is caused by external macro-economic factors seems a bit unclear to me. And perhaps that’s also contributing to the volatile share price. Personally, I’m keeping Wish on my watchlist until more information becomes available.