ContextLogic Inc. (WISH) is a mobile ecommerce company that operates across the globe. With its main operations in Europe, North America, and South America, it connects consumers to merchants through its Wish platform as well as its marketplace and logistics services.

The main value for WISH comes from its large network of consumers and merchants that creates switching costs for customers, preventing churn. The large network also attracts new members to the platform.

Additionally, the business benefits from the ability to scale its logistics business rapidly, thanks to its capital-light model. Instead of owning the warehouses where its goods are stored until shipping, it contracts for warehouses with local operators. Last but not least, the company benefits from the strong growth tailwinds that ecommerce is enjoying right now. With so many businesses and consumers increasingly moving online, WISH has little trouble growing its platform.

Strong Results for WISH

In its most recent quarterly report, WISH posted extremely strong growth results. Revenue was up a whopping 75% year-over-year while the core marketplace revenue grew by 40% year-over-year. Additionally, the company has a vaunted network of merchants totaling over 550,000 and is present in over 100 countries. Its core marketplace revenue per active buyer increased by 76% year-over-year and logistics revenue quadrupled year-over-year. (See ContextLogic stock charts on TipRanks)

The marketplace’s scope also continues to grow rapidly, as the Wish Express listing increased by 414% year-over-year. The platform’s efficiency also improved, as shipping-related refunds declined by 43% year-over-year.

Valuation Metrics for WISH Looking Reasonable

In addition to these impressive results, WISH’s valuation looks pretty reasonable after its post-IPO pullback. WISH’s enterprise value to forward revenues is a mere 1.59x, which is quite reasonable for a company that is expected to grow revenue by 25.8% in 2021 and 18.2% in 2022. Meanwhile, despite running GAAP and EBITDA losses, WISH is actually free cash flow positive, as it is expected to generate nearly 190 million in free cash flow over the next four quarters.

Story continues

Furthermore, its profit margins are trending positively. The company's EBITDA margin is expected to improve from -8.5% in 2020 to -0.3% in 2022 and its net income margin is expected to improve from -9.9% in 2020 to -1.6% in 2022. Gross margin is expected to be 58.1% this year and improve to 60.28% in 2022, indicating that – as ContextLogic scales and improves efficiencies – it has significant profitability potential.

Wall Street’s Take on WISH

From Wall Street analysts, WISH earns a Moderate Buy consensus rating based on 2 Buy ratings, 3 Hold ratings, and 0 Sell ratings in the past 3 months. Additionally, the average ContextLogic price target of $16.80 puts the upside potential at 50.8%.

Summary and Conclusions

WISH has a lot going for it right now, as it is riding the strong growth momentum in ecommerce and also benefits from its highly scalable capital-light business model. Even better, the stock appears very reasonably priced given its profitability and growth potential. Furthermore, Wall Street analysts are overall bullish on its prospects and the average target price gives WISH a large upside. As a result, it could be an attractive buy right now.

Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

(305) 707 0888