With shares of ContextLogic (NASDAQ:WISH) up 16% in the past five trading sessions, should investors take a leap of faith on the e-commerce start-up?
San Francisco-based ContextLogic operates Wish, an e-commerce platform that facilitates transactions between online sellers and buyers. Think of it as a newer, smaller version of eBay (NASDAQ:EBAY). Like eBay, Wish allows sellers to list products on its platform and sell them directly to consumers. Wish works with a variety of financial technology companies and service providers to facilitate payments between sellers and buyers. Wish does not stock products itself and, unlike eBay, does not manage returns when consumers are unsatisfied with what they have purchased.
While WISH stock has popped in recent days, its share price remains down 45% on the year and currently trades at $10.55. Since going public last December, ContextLogic’s stock is down 55%. Following its initial public offering (IPO), the stock ran up to a peak of $32.85 in late January of this year before coming down 68% to its current level. After bottoming at $7.52 a share in late May, ContextLogic’s stock looks to now be on an upsurge and might be worth adding to a portfolio.
Low Income Differentiator
In addition to ContextLogic not managing returns, the company also differentiates itself by targeting low-income households who are extremely price-conscious, especially throughout Europe. In a survey published by the company, three-quarters (75%) of ContextLogic customers prioritized the price of an item over brand or delivery time. The average price of an item sold on the Wish platform is less than $20. While targeting low income consumers might provide ContextLogic with a niche, it seems to have left analysts struggling to figure out the company.
Bank of America (NYSE:BAC) recently downgraded ContextLogic to a “neutral” rating from a “buy” previously and put a $12 price target on the share price. While the Bank of America downgrade got a lot of attention, its $12 price target is the lowest current rating on WISH stock. Among 10 analysts who have 12-month price forecasts on ContextLogic stock, the median price target is $17.50, with a high estimate of $24.00 per share. The median price target represents a potential 67% increase from the stock’s current level.
Buildout And Growth
While small and less than half the age of eBay and other e-commerce giant Amazon (NASDAQ:AMZN), ContextLogic is growing quickly and building out its operations. The company is currently expanding its logistics business, reducing its shipping times and lowering its shipping rates. The company has successfully grown its monthly active users (MAUs) five-fold from 21 million in 2015 to 107 million at the end of 2020.
ContextLogic has also succeeded in signing up new merchants to Wish. The company now has more than 550,000 partner merchants and more than 50,000 local partners that join to gain access to Wish’s customer base. And ContextLogic is increasing its advertising revenue at a fast pace. The company has forecast that its advertising business could double to $100 million in revenue per quarter by 2025. That ad forecast is likely attainable as the number of users and merchants on the Wish platform continues to grow.
And, perhaps most importantly, ContextLogic is finding ways to further monetize its users. Buyers who spent $10 on the Wish platform in 2016, spent closer to $20 in 2017 and continue to grow their spending. This trend of increased spending builds a foundation for long term revenue growth at ContextLogic.
Buy WISH Stock
While not a slam dunk, WISH stock has enough upside potential and is affordable enough at its current price of $10 per share to justify taking a position. The company’s outlook is positive and growth is strong, and the company seems to be taking the right steps to expand the business and ensure it is sustainable over the long-term. Going forward, it will be interesting to see if the Wish platform continues to focus on low-income consumers or expands to a higher end clientele. Regardless, ContextLogic stock is a buy for investors looking for a start-up that is growing fast.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.