So what’s gone wrong? And does this present me with a buying opportunity?

Wish.com and recent results

Wish connects buyers and sellers through its website. Merchants are able to list their products on the platform, while also enabling users to personalise the items they buy.

But in the company’s third-quarter results to 30 September, revenue declined by 39% from the same period last year. This is concerning given how much the e-commerce sector is growing right now.

The net loss across the quarter did reduce, from $99m to $64m. The executive chair put this down to more efficient and reduced digital advertising. However, across the full nine months to September, the net loss was $303m, which was an increase from a loss of $176m over the same nine months in 2020.

My biggest concern in the results was the expectation of lower revenue in the fourth quarter, despite it being the festive season. As a potential investor in Wish, I would want to see revenue grow significantly over the Christmas period.

Wish also said the current CEO will step down, though he will remain on the board of directors. I expect this to cause some disruption at the company until a successor is found.

France removes wish.com

Outside of the recent results, the French government this week announced that it is ordering online websites to remove Wish’s listings as it says a large number of its products are dangerous. This is a huge blow to the company. Wish has already issued a statement to say it’s commencing legal action against the claim.

The bull case

Until recently, the company had grown its revenue at an impressive rate, from $1.1bn in 2017 to $2.5bn at the end of 2020. It operates in the growing e-commerce sector, so if the business can overcome its recent issues then it may be able to get back to its previous growth rates.

Then, online marketplaces have the potential to develop excellent network effects. This makes for a strong economic moat which I wrote about here. Wish may have the potential to do the same for the personalised consumer products market.

The bear case

The recent results and expectations for declining revenue in the fourth quarter is a big concern in my view. It says to me that the company needs to spend considerably on digital advertising to keep revenue growing. With only $1bn in cash on the balance sheet, and already generating a net loss of $303m in 2020, Wish might not have enough cash. Indeed, the company says itself it’s reducing its spending on advertising.

But the recent claims from France that its products are dangerous means I cannot invest today. Until this is resolved, I’ll be staying away. I understand why the Wish share price has crashed, and think there are better stocks to consider.

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.