Contextlogic is San Francisco, California-based e-commerce Company with worldwide operations and operates the online store wish.com for connecting merchants to users. In addition, the company incorporated in 2010 provides logistics and marketplace service to merchants. Despite the surge in online buying during the two years of the pandemic in 2020 and 2021, the contextlogic stock has been dwindling dramatically and currently trading at $2.34. The company’s attempt at reopening the retail outlets in 2021 harmed its prospects by limiting the top-line growth. Further, as the economy reopened in 2021 and the e-commerce traffic started declining, the primary internal issues plaguing the company resulted in massive erosion of the customer base. Contextlogic’s brand and image received a severe blow due to the recent withdrawal of the WISH app from the Google Play Store and Apple Store in January.
Consequently, the company’s market share shrunk by 90% last year. Now, let us look at the contextlogic stock forecast in 2022.
What the indicators say about contextlogic stock
Those aware of the stock market dynamics know very well that the stock prices often do not correlate to the company’s performance and vice versa. However, it is not true when discussing the state of affairs in Contextlogic because the company’s performance has been much worse than what its current share price might indicate. Market watchers who follow contextlogic stock news know that the company faces an existential crisis. The volume of traffic reaching the website is a strong indicator of the performance of e-commerce companies because it significantly impacts the bottom line. Customers are abandoning the WISH platform en-masse, and along with a rapid decline in revenues and cash resources, the company’s existence is under threat. Only immediate restructuring of the business operations can help avoid any eventuality and help the company turn around.
Terrifying results
If you are wondering why is contextlogic stock dropping, you must have got your answer. However, if you are still not convinced, then let us look at the company’s results in 2021 seem terrifying for the market watchers, analysts, and stockholders.
Loss of customers – In the last few quarters, the massive erosion of the customer base is likely to continue, which will result in negative sales growth. The company miserably failed to hold on to the user base that grew during the pandemic in 2020. When the company declared the results for the third quarter it recorded the number of users at 60 million down from 100 million in the previous quarter.
Revenue – During the nine months up to September 30, 2021, the company recorded revenue of $368 million which translates into a severe decline of 39% year-on-year. All company revenue streams showed negative figures, which points to a huge disaster. Especially concerning is the reduction in marketplace revenue that constitutes 60% of total revenue. It’s ironic that as of September 30, 2021, Contextlogic did register a 3% revenue increase for the nine months, but it was only momentary as the decline accelerated soon after.
Margins, negative free cash flow, and return on equity
Contextlogic is losing cash heavily as it cannot provide a profitability baseline. The company keeps losing money every quarter, and it lost $64 million as of September 30, 2021, with a net loss of $303 million during that period. The company’s free cash flow is negative too, and the massive slump in customers and revenue remains doubtful whether the company can generate positive cash flow. The free cash flow for the period was -$903 million, of which it was -$344 million in the third quarter alone. It means that the company lost almost a billion dollars out of a sales figure of $1.8 billion.
About a year ago, Contextlogic was valued at $10 billion, and its stock was trading nine times revenue of $2.5 billion for the whole year. AT that time, Amazon was trading at three times the entire year’s revenue. With today’s valuation of $2 billion approximately and revenue of $1.7 billion, the contextlogic stock might appear to be a good bargain. But when you look at the bigger picture, it will be impossible to see any silver lining as the company goes downhill.
