Investing

ContextLogic Inc. (WISH): IPO Under-Performer Ready For Run Up

ContextLogic Inc. (WISH), the company behind online shop Wish, could be ready for exponential growth in the next years using their successful pervasive social media strategy. As the company boosts its visibility and conversion rates creep up higher, the recent run-up will prove only the beginning.

The company brings mainly Chinese merchants with Western consumers together, by cutting out middlemen ContextLogic Inc. created a platform on which consumers have complete control over their purchases. Dubbed the next Walmart, the creators effectively enrolled pervasive marketing strategies. The same can’t be said about the products offered on the platform, as experiences with the platform vary widely. However, by imposing responsibility of the purchase on consumers Wish has found a way to successfully create an ever-ongoing cargo bridge between China and the West.

Wish’s Run-Up Is Durable On The Long Run

In recent weeks ContextLogic Inc. (WISH) has been dubbed the next meme-stock, however, the big difference is that this stock has the potential to profit directly from the increased attention. The fast growing company is an example of a meme stock that could have durable success on the long run as analysts rate the stock as undervalued with 50 percent growth potential from current levels. However, the stock has lost a painful fifty percent since going public in 2020. Wish currently has more than 100 million monthly active users with a revenue of $2.5 billion, growing 31%- year-over-year. Interestingly, their revenue was only $300 million in 2015 pointing to the fast growth of the company led by former Google and tech engineers. In Q1 2021 revenue growth accelerated to 75% year-over-year making the stock a strong buy for The Golden Investor.

YearRevenue
2017$1.1B
2018 $1.7B
2019 $1.9B
2020 $2.5B
Q1 2021$0.77B
Table 1 – Revenue ContextLogic Inc. (WISH) in recent years

Wish’s Unique Strategy Makes Investor’s Wishes Come True

By creating Wish.com the creators successfully responded to the digitalization trend that intensifies each year. By replacing common stores the company takes over market share from smaller companies that operate on a lower scale. In the last few years gross profit continued to grow, despite claims that the company would succumb under pressure by more service-oriented physical stores. Launched in 2010 as a wish-list creating app, it inverted Amazon’s strategy which has led to their hyper-growth figures. By focusing on low-pricing and overwhelming supply and choice for consumers it has found a market that large tech-giants have undervalued for years. There was a large under-served market of consumers that prioritized price over pretty packaging, fast shipping, and brands. A survey showed that 21 percent of lower-income shoppers access the internet solely on their smartphones, which is higher than the 12 percent average. Attention to the mobile shopping experience led to large-scale usage of Wish in the United States and around the world, and their rankings still reflect this fact. By taking a margin on many low-priced goods the company is purely focused on growth as it is their only way to survive.

Wish Successfully Profits From The Gold Data Age

Their pervasive social media strategy characterized by large advertisement spending makes use of easy-available data of visitors. By attracting social media users and giving them the option to enter the platform only with their social accounts Wish automatically gets a profile of each customer which makes keeping visitors on the platform easier. Wish uses their social media information to compile a more comprehensive picture of their customers and their product preferences. Wish is the ultimate example of a company that thrives on the information rich digital age as over 70% of the sales on the Wish platform do not involve a search query and instead come from personalized browsing. This underlines the success of their strategy by attracting visitors with low prices and converting them into shoppers by using their preferences against them. With the gamble-like experience featuring an interface looking more like a browsing page of pictures rather than an e-commerce store, the developers try to affect habits and patterns of the app-users, which eventually lures them into purchasing goods on the platform.

The Stock Is Up For Big Challenges As Regulation On Big Tech Strengthens

Wish is extremely dependent on the Google and Apple App Stores, but also on Big Tech giants like Facebook, which makes them especially vulnerable to changes in privacy legislation protecting consumers against companies like Wish that become increasingly better at steering consumers. It is exactly this behavior that legislators try to tackle directly and indirectly through laws that restrict companies to create whole user profiles, which are so vital in Wish’s business model.

The corona outbreak partially has hurt sales as their low-income target clients had less to spend during these unprecedented times. However, as the United States reopens and Europe gets increasingly vaccinated too, their target audience could return with even larger numbers, spending more than ever as economies seem to be booming in the corona aftermath. The Golden Investor thinks that ContextLogic Inc. (WISH) will be able to overcome challenges and grow further as cheap market place for low-income consumers. The company could grow even more if it would enter the Indian market with a growing middle-income group with less to spend. This will be very challenging, but is not entirely unimaginable as growth in the United States is hitting its top level. The innovative and research-heavy focus of the company will prove lucrative for early investors as it could grow to much larger extents in the coming years.

Disclaimer: The writer of this article holds ContextLogic Inc. (WISH) stock, this article should not be interpreted as investment advice or anything like that.

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