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ContextLogic Q3: Fortunes Unlikely to Change
Stock Analysis & Ideas

ContextLogic Q3: Fortunes Unlikely to Change

Easing stay-at-home mandates, higher competition from physical retail, and increased digital advertising costs weighed on ContextLogic’s (WISH) financials in the first half of 2021. Moreover, the fortunes of this marketplace and logistics services provider are unlikely to change much in Q3 (earnings scheduled on November 10).

To give a bit of context, its core marketplace revenues are taking a hit due to lower order volumes and a decline in the conversion of new buyers amid the reopening of the economy. Further, its number of users and mobile engagement declined, while lower marketing efficiency added to its pain. 

Though ContextLogic is taking steps to improve its operating performance, it doesn’t expect these initiatives to have a meaningful impact on its performance before the second half of 2022. Further, the company significantly cut back on digital advertising spending, a move likely to hurt its new buyer conversion rate. 

Providing a glimpse into Q3, ContextLogic stated that its revenue through July 2021 was trending 40% lower than in the prior quarter. Further, its core marketplace revenue declined about 55% during the same period. 

Also, with lower ad spending, its Q3 revenues are forecasted to decline further, while it projects adjusted EBITDA loss between $65 million and $70 million.

Given the ongoing weakness in its operating performance, Wall Street expects ContextLogic to post revenues of $380.28 million in Q3, reflecting a sequential decline of about 42%. Meanwhile, analysts expect ContextLogic to post an adjusted EBITDA loss of $68.2 million in Q3. 

The weakness in its revenues and decline in active users has taken a toll on ContextLogic’s share price. It has lost about 71% of its value in 2021. Further, it is trading significantly below its IPO (initial public offering) price of $24. 

Despite the massive decline in its price, I maintain a Neutral view on ContextLogic stock, owing to ongoing weakness across all of its key performance metrics. 

Additionally, TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks maintain a Very Negative outlook on ContextLogic stock, with 8.7% of these investors decreasing their exposure in the last 30 days. Also, insiders have been reducing their exposure to WISH.

Overall, ContextLogic stock sports a rating consensus of Hold, based on 2 Buys, 5 Holds, and 3 Sells. Meanwhile, WISH scores a 1 out of 10 from TipRanks’ Smart Score rating system, indicating that it is likely to underperform the market.

See Top Smart Score stocks >>

Nonetheless, the average ContextLogic price target of $9.06 implies 70.3% upside potential to current levels.

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

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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