Risk/Reward Rating: Negative
Wish (ContextLogic), a mobile ecommerce platform, grew revenue 75% in Q1 2021 which led to a 174% increase in losses as measured by free cash flow. Of particular concern is that revenues are expected to grow only 2% to 4% in Q2 of 2021 versus last year while cash outflows continue. The cash outflow was -$354 million in Q1 2021 versus -$129 million last year.
The company was founded in 2010. After a decade plus of operation one would expect a sustainable business model to be producing increasing free cash flow rather than increasing cash outflows. The company has a long-term EBITDA (earnings before interest, taxes, depreciation, and amortization) margin target of 20% to 30% of revenue.
Based on the competitive nature of the value conscious online retail segment in which Wish competes and its history of negative margins, the 20% to 30% EBITDA margin goal appears to be wishful thinking. Of note, the IPO was completed in December of 2020 during frothy market conditions in the $20 per share area.
Valuation: 3.21x 2020 sales, the company is not expected to be profitable in the near term. It is notable that sales grew 10% in 2019 and 33% in 2020 due to the COVID lockdowns boosting ecommerce. With flattish revenue growth expected in Q2 2021, the COVID bump to sales appears to be over. The book value of the company is $930 million as of Q1 2021 or $1.50 per share against negative cash flow of -$354 million or -$0.54 per share in the quarter.
Technical resistance: $15, which is the broken support level from Q1 2021.
Technical support: The stock found support in the $7.50 area in June. No support is visible given the brief trading history and the lack of fundamental value due to negative cash flows and a low and decreasing book value.
Wish (ContextLogic) 6-month daily chart
Price as of report date 6-22-21: $13.89
Wish Investor Relations Website: Wish Investor Relations