How Does WISH Compare to Discount Stores Like Dollar General and Dollar Tree?

With upcoming earnings on May 12th, I predict that WISH will miss their earnings and continue having a negative operating margin. I believe that holders of this stock should sell before the upcoming earnings and look for a possible re-entry after the stock breaks its support around the higher $10 range, and buy back when the stock hits single digits. Company Overview: Wish ContextLogic Inc (NASDAQ: WISH) is an online e-commerce platform that utilizes browsing strategies to match consumers with products based on user preferences. The site grew in the mid-2010s due to their early adoption of the direct-to-consumer business model that allowed them to offer products at significantly lower prices than competitors. They are generally known for selling low-quality and "cheap" goods. Strategy: By strategizing price over experience and offering drastically cheaper prices and better deals than their competitors. User Statistics: 100M+ monthly users, operating in 100+ countries, 500000+ merchants, 150M+ products Major Shareholders: Galileo (PTC) Ltd (17.69%), Formation8 GP LLC (10.81%) Fiscal Year 2020 Financial Highlights: Gross profit increased by 9.3% to $1,594M from the previous year value of $1,458 Cost of revenue brought down FY2020 gross profit by approx. 60% Refer to Gross Profit Breakdown to see a breakdown of the cost of revenue and streams of revenue Net loss increased by 477% to $745M from the previous year value of $129M Total operating expenses exceed the company’s gross profits and reflects unprofitable operations Refer to Total Operating Expenses Chart  Loss from operations accounts for approx. 85% of net loss Operating margin of -24.8% is negative and below in the industry compared to competitors (Dollar General and Dollar Tree) Dollar General's operating margin FY2021 is 10.5% Dollar Tree's operating margin FY2021 is 87.4% Cash and cash equivalents position at $2B The company's cash position is keeping the company afloat and helping to cover expenses and remain in operation Must continue generating cash flow to remain in operation or must increase profits or decrease expenses Primarily relying on cash from shareholders and burning cash is not sustainable, thus firm should focus on generating profits from their operations Rising Issues: Consumer Perception and Retention Consumer Perception- Wish has drawn up a bad reputation in the market for their low-quality control, poor customer service, and delayed shipping time which have lead to a large percentage of their customer base being dissatisfied with their purchases. Most review sites have given Wish poor ratings with customers mostly expressing their bad experience with the e-commerce platform. The general consensus about Wish is that they are a "scam" and that a majority of products offered are counterfeit. While Wish's strategy is to offer low prices and prioritizing these discount prices over the customer experience, the company is facing a problem where consumer perception is affecting consumer purchases. Customer Retention- Wish mainly relies on taking small profits from consumer purchases as their revenue (accounting for 71.9% of total revenue FY2020). With no efforts in retaining consumers through customer service or changing infrastructure issues, they risk losing their customer base to competitors and losing revenue. Financial Analysis: Negative EBIDTA and EBIT values are a sign of high day-to-day operations cost Poor cash flow from operations There is not enough operating income to account for operating expenses Marketing and selling expenses increased 17% YoY which can account for negative EBIDTA/EBIT values Final Thoughts Wish has a long way to go in making some huge changes in order to change consumer perception and maintaining customer loyalty - in that way it can possibly lower marketing costs while keeping profits high. Their early-on popularity from the "hype" over how cheap items had since died down. Given that most values in the comparative analysis are negative, I believe Wish is a high-risk stock with a low-reward proposition. In addition, the negative operating margin (primarily due to the high selling and marketing expenses) shows that WISH'S financials are not good (or on par with competitors) and the firm must decrease their operating expenses or increase their profits to continue operating. Sources: https://investors.ebayinc.com/investor-news/press-release-details/2021/eBay-Inc.-Report s-Better-Than-Expected-Fourth-Quarter-and-Full-Year-2020-Results/default.aspx https://www.businesswire.com/news/home/20210308005779/en/Wish-Reports%C2%A0 Fourth-Quarter%C2%A0and-Fiscal-Year-2020%C2%A0Financial-Results https://www.businesswire.com/news/home/20210303005314/en/Dollar-Tree-Inc.-Reports -Results-for-the-Fourth-Quarter-and-Fiscal-Year-2020 https://www.businesswire.com/news/home/20210318005242/en/Dollar-General-Corporat ion-Reports-Fourth-Quarter-2020-Results https://www.businessofapps.com/data/wish-statistics/ https://finance.yahoo.com/quote/WISH/financials?p=WISH https://finance.yahoo.com/quote/DLTR/financials?p=DLTR https://finance.yahoo.com/quote/DG/financials?p=DG https://finance.yahoo.com/quote/EBAY/financials?p=EBAY

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undervaluedplayer

May 11, 2021
· POSITION CLOSED

17.59%

Position Return %

11.88

Price When Posted

2.09

Position Return

WISH

ContextLogic Inc - Class A

6.33

-0.08
-1.25%
Current Price

How Does WISH Compare to Discount Stores Like Dollar General and Dollar Tree?

bearish

With upcoming earnings on May 12th, I predict that WISH will miss their earnings and continue having a negative operating margin. I believe that holders of this stock should sell before the upcoming earnings and look for a possible re-entry after the stock breaks its support around the higher $10 range, and buy back when the stock hits single digits.

Company Overview:

Wish ContextLogic Inc (NASDAQ: WISH) is an online e-commerce platform that utilizes browsing strategies to match consumers with products based on user preferences. The site grew in the mid-2010s due to their early adoption of the direct-to-consumer business model that allowed them to offer products at significantly lower prices than competitors. They are generally known for selling low-quality and "cheap" goods.

Strategy: By strategizing price over experience and offering drastically cheaper prices and better deals than their competitors.

User Statistics: 100M+ monthly users, operating in 100+ countries, 500000+ merchants, 150M+ products

Major Shareholders: Galileo (PTC) Ltd (17.69%), Formation8 GP LLC (10.81%)

Fiscal Year 2020 Financial Highlights:

  • Gross profit increased by 9.3% to $1,594M from the previous year value of $1,458
    • Cost of revenue brought down FY2020 gross profit by approx. 60%
    • Refer to Gross Profit Breakdown to see a breakdown of the cost of revenue and streams of revenue
  • Net loss increased by 477% to $745M from the previous year value of $129M
    • Total operating expenses exceed the company’s gross profits and reflects unprofitable operations
      • Refer to Total Operating Expenses Chart
    •  Loss from operations accounts for approx. 85% of net loss
  • Operating margin of -24.8% is negative and below in the industry compared to competitors (Dollar General and Dollar Tree)
    • Dollar General's operating margin FY2021 is 10.5%
    • Dollar Tree's operating margin FY2021 is 87.4%
  • Cash and cash equivalents position at $2B
    • The company's cash position is keeping the company afloat and helping to cover expenses and remain in operation
    • Must continue generating cash flow to remain in operation or must increase profits or decrease expenses
      • Primarily relying on cash from shareholders and burning cash is not sustainable, thus firm should focus on generating profits from their operations

Rising Issues: Consumer Perception and Retention

Consumer Perception- Wish has drawn up a bad reputation in the market for their low-quality control, poor customer service, and delayed shipping time which have lead to a large percentage of their customer base being dissatisfied with their purchases. Most review sites have given Wish poor ratings with customers mostly expressing their bad experience with the e-commerce platform. The general consensus about Wish is that they are a "scam" and that a majority of products offered are counterfeit. While Wish's strategy is to offer low prices and prioritizing these discount prices over the customer experience, the company is facing a problem where consumer perception is affecting consumer purchases.

Customer Retention- Wish mainly relies on taking small profits from consumer purchases as their revenue (accounting for 71.9% of total revenue FY2020). With no efforts in retaining consumers through customer service or changing infrastructure issues, they risk losing their customer base to competitors and losing revenue.

Financial Analysis:

  • Negative EBIDTA and EBIT values are a sign of high day-to-day operations cost
    • Poor cash flow from operations
    • There is not enough operating income to account for operating expenses
    • Marketing and selling expenses increased 17% YoY which can account for negative EBIDTA/EBIT values

Final Thoughts

Wish has a long way to go in making some huge changes in order to change consumer perception and maintaining customer loyalty - in that way it can possibly lower marketing costs while keeping profits high. Their early-on popularity from the "hype" over how cheap items had since died down. Given that most values in the comparative analysis are negative, I believe Wish is a high-risk stock with a low-reward proposition. In addition, the negative operating margin (primarily due to the high selling and marketing expenses) shows that WISH'S financials are not good (or on par with competitors) and the firm must decrease their operating expenses or increase their profits to continue operating.

 

Sources:

  1. https://investors.ebayinc.com/investor-news/press-release-details/2021/eBay-Inc.-Report s-Better-Than-Expected-Fourth-Quarter-and-Full-Year-2020-Results/default.aspx
  2. https://www.businesswire.com/news/home/20210308005779/en/Wish-Reports%C2%A0 Fourth-Quarter%C2%A0and-Fiscal-Year-2020%C2%A0Financial-Results
  3. https://www.businesswire.com/news/home/20210303005314/en/Dollar-Tree-Inc.-Reports -Results-for-the-Fourth-Quarter-and-Fiscal-Year-2020
  4. https://www.businesswire.com/news/home/20210318005242/en/Dollar-General-Corporat ion-Reports-Fourth-Quarter-2020-Results
  5. https://www.businessofapps.com/data/wish-statistics/
  6. https://finance.yahoo.com/quote/WISH/financials?p=WISH
  7. https://finance.yahoo.com/quote/DLTR/financials?p=DLTR
  8. https://finance.yahoo.com/quote/DG/financials?p=DG
  9. https://finance.yahoo.com/quote/EBAY/financials?p=EBAY
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4 min

9.00

Target Price

6/ 10

Confidence

1-2 Months

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