Is WISH’s stock a buy?

Introduction

ContextLogic Inc. (WISH), also most commonly known as Wish, offers a new way for consumers to shop. Rather than relying on a search engine like Amazon or Walmart+, 70% of all WISH sales came from users discovering items from WISH’s proprietary algorithm rather than from a user’s search. These sales are driven by impulse buys because the products are often cheap. WISH had its IPO in December 2020 and is down a little over 50 percent. However, a couple of significant tailwinds will help WISH recover.

WISH’s logistic business

WISH has a global logistics business, where it has access to warehouses and transportation. This system is much better than the system that WISH had in previous years when sellers would ship directly to buyers. With WISH’s logistic business platform, they are completely in control of the shipping process. Users can pay extra for expedited shipping. This has contributed to a substantial decrease in customers’ refund rate, which was down 43% YoY. Because of WISH’s logistics business, their cost of revenue has skyrocketed to 947 million dollars in 2020. At the same time, WISH’s logistic business did offset some of the rise in cost by generating 500 million dollars in revenue. For a company still in its early stages of growth, WISH’s logistics business is a good investment that improves user experience.

WISH’s marketing

WISH’s primary way of attracting new users is by advertising digitally, which has been consistent in driving user growth. Although WISH has spent a huge amount of money on marketing — 1.7 billion dollars in 2020 which comprise 67% of their revenue, they have been able to successfully grow with their marketing. For example, their marketing cost in 2019 was $1.46 billion, and $1.71 billion in 2020 which is a 14% increase. Meanwhile, their revenue grew from $1.90 to $2.54 billion which is a 25% increase. So, even though their marketing costs are large, for a growth company it works as long as they are still able to grow users. As WISH grows in size and is able to naturally drive organic growth in users WISH can cut down on this substantial marketing expense since they would no longer rely on digital advertising. Rather, the brand and the products themselves would drive users, which would expand the company’s profitability.

Conclusion

Overall, WISH is trying to fix two of the biggest complaints about their app, which are long shipping times and questionable knockoff products that hurt brand reputation. The increase in U.S merchants will add more diversity to its product offerings as well as improve product quality, and WISH logistics will improve shipping times. Overall, trading at less than 3x Price to Sales, WISH is a good bet as it has a truly unique shopping experience while being able to consistently grow with its current strategy. Once WISH has grown enough in scale, profitability will come naturally as margins expand.