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WISH Stock: Is ContextLogic The New Meme On The Block?

After dropping 40% since its December 2020 IPO, e-commerce platform Wish saw its stock rise more than 20% in the last 5 days. Wall Street Memes looks at WISH, the newest meme stock on the block.

E-commerce platform Wish, founded in 2010 and publicly traded since December 2020, became a recent topic of discussion on Reddit’s Wall Street Bets forum. In the last 5 days of trading, shares of the San Francisco-based company appreciated by more than 20%.

Figure 1: Wish.com HQ in San Francisco, CA.

Figure 1: Wish.com HQ in San Francisco, CA.

Today, Wall Street Memes presents a brief analysis of the company and tries to answer the questions:

  1. Could WISH be the next meme stock to rise on momentum?
  2. Otherwise, could there be solid business fundamental reasons for investing in the shares?

Promising e-commerce

ContextLogic, the company that operates Wish.com, is a retailer operating solely in e-commerce. The company, founded by Piotr Szulczewski in 2010, is based in San Francisco, has 900 employees, and a market cap of $8.4 billion (and moving rapidly as of late).

More than 1 million merchants use the platform to sell their products through a low-cost marketplace model. Much of Wish’s business comes from China, the merchants’ main distributor country.

Recent financial performance

In the company's most recent earnings release, ContextLogic reported accelerated revenue growth of 76% year-over-year, beating analysts’ expectations of $743 million. However, even with impressive top-line growth, high marketing and sales costs led to negative margins and a large net loss: EPS of -0.21 vs. -0.18 estimated by Wall Street.

Figure 2: WISH revenue and net loss in FY21 Q1 vs. FY20 Q1

Figure 2: WISH revenue and net loss in FY21 Q1 vs. FY20 Q1

Source: Data from Wish Investor Relations

Since earnings season, the stock plummeted nearly 55% through early June. This drop could be justified by disappointing Q1 performance that came along market-lagging guidance for the current fiscal period.

WISH: it’s alive!

However, as of June 21, WISH shares had spiked by approximately 23% over a two-day period. The sudden recovery probably resulted from the stock becoming the focus of debate on Reddit's Wall Street Bets forum.

See below a chart that shows the volume of comments about WISH on the discussion board, alongside the stock's performance. Notice the clear correlation between the two metrics – although it is not as easy to establish causation in this case.

Figure 3: WISH sentiment on Wallstreetbets vs. comment volume on June 23.

Figure 3: WISH sentiment on Wallstreetbets vs. comment volume on June 23.

Is WISH a stock to buy now?

According to Yahoo Finance, there are 3 strong buy, 7 buy and 2 neutral ratings among 12 analysts. The consensus price target is above $18, suggesting upside opportunity of around 50%, even after the early June spike.

As far as the retail space is concerned, a recent research report suggests that e-commerce is likely to flourish beyond the COVID-19 crisis. The pandemic seems to have permanently changed consumption habits to favor the at-home channel.

It is estimated that US online sales will grow by $865 billion in 2021, a 13% increase over a pandemic year that was already ideal for e-commerce. Companies that are e-commerce native, as is the case of Wish, can benefit from the tailwinds.

However, merely being on the right side of the secular trend might not be enough. To sustain top- and bottom-line growth, Wish will need to mature, rake in gains from scale and keep its high costs of operation under control.

That said, business fundamentals may not matter much in the short term. With the impetus provided by “meme mania”, Wish could very well get back on track and head towards Wall Street’s target price with the blink of an eye.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)