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Is the Slump in ContextLogic Stock Temporary?

2021 has turned out to be a painful year for ContextLogic (WISH) investors. Shares of this e-commerce company fell nearly 64% this year, and are now trading well below its IPO price of $24. 

Notably, ContextLogic, which provides marketplace and logistics services to merchants, began trading on NASDAQ on December 16, 2020. 

While ContextLogic stock initially gained from the accelerated shift towards e-commerce platforms, the easing of stay-at-home mandates amid ongoing vaccinations weighed on its marketplace revenues and user retention rate, and in turn, reduced its stock price. (See ContextLogic stock charts on TipRanks) 

The company’s core marketplace revenue fell 32% year-over-year during the last reported quarter, reflecting a decline in order volume and lower conversion rates of new buyers. Furthermore, active buyers on its platform decreased by 44%. It’s worth noting that ContextLogic’s daily user activity and active buyers on its platform declined in three of its key markets: the U.S., France, and Italy. 

ContextLogic’s CEO Piotr Szulczewski stated that “globally we saw a 13 percent reduction in app installs and a 15 percent reduction in average time spent on our platform in Q2 2021 compared to Q1 2021.” 

While user engagement declined, increased competition from physical retail and higher digital advertising cost remained a drag. As ContextLogic faces multiple headwinds on the revenue and margins front, I have a Neutral outlook on the stock. 

Citing higher ad rates and churn, Nicholas Jones of Citigroup maintained a Hold rating on ContextLogic stock. However, he lowered the price target to $7.50 (13.5% upside potential) from $12. 

Meanwhile, Mike McGovern of Bank of America Securities downgraded ContextLogic stock to Sell from Hold and reduced the price target to $6 (9.2% downside potential) from $12, owing to the declining trend in its monthly active users (MAU) and prolonged recovery. 

Regarding users, ContextLogic’s MAU declined by 7% in Q1 and 22% in Q2 of this year. 

Nevertheless, ContextLogic announced initiatives to acquire and re-engage users, including investing in its platform and enhancing product quality and selection. Further, investors’ confidence in ContextLogic stock has improved in the recent past. 

TipRanks’ Stock Investors tool indicates that investors currently have a Very Positive outlook on ContextLogic stock, with 3.3% of investors who hold portfolios on TipRanks increasing their exposure over the past 30 days.

Overall, ContextLogic stock has a Hold consensus rating, based on 2 Buys, 6 Holds, and 2 Sells. The average ContextLogic price target of $9.81 implies 48.4% upside potential from current levels.

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

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