The boom in ecommerce caused by the COVID-19 pandemic propelled several firms toward sky high revenues and valuations. As the trends pull back, and consumers leave mobile shopping platforms in favor of brick and mortar retail, ecommerce companies are feeling the pain. After its IPO in December 2020, ContextLogic Inc. (WISH) has felt reality kick in after economies reopened in the spring, and once again after its Thursday earnings call last week. (See ContextLogic stock charts on TipRanks)
Downgrading his hypothesis on the company is Scott Devitt of Stifel Nicolaus, who wrote that “improving consumer mobility” has indeed impacted user acquisition, engagement, and retention for WISH. However, the company also has its own faults to rectify.
Devitt reiterated his Hold rating on the stock, and downgraded his price target from $12 to $8. This new target represents a possible 12-month upside of 5.96%. Important to note is that by market close on Friday, WISH had dropped -19.77% in one day.
The five-star analyst explained that WISH missed on several key earnings metrics, including revenue and adjusted EBITDA losses. Furthermore, monthly active users fell –23% year-over-year, and mobile app downloads fell –13% quarter-over-quarter. For those who use the app, time spent on it fell –15% over that same period.
Beyond improving consumer trends for physical retail, Devitt pointed out glaring issues with WISH itself, including poor quality control on its platform, as well as longer-than-average delivery times for its products.
Moreover, higher advertising costs have caused WISH to cut back on marketing spending, by which Devitt was not encouraged.
In its earnings call, ContextLogic expressed its intention to focus on improving the user experience on its app, as well as on optimizing the quality of its merchants and their products in order to retain customers. Devitt also mentioned that WISH plans to refine its “discovery-based personalization capabilities on the platform.”
Despite this new shift of focus, investors should not anticipate any significant upside for at least another year.
On TipRanks, WISH has an analyst rating consensus of Hold, based on 2 Buy, 6 Hold, and 2 Sell ratings. The average ContextLogic price target is $11, reflecting a possible 12-month upside of 45.70%. WISH closed trading Friday at a price of $7.55 per share.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.