ContextLogic Can’t Avoid The Problems That Come From Its Dependence on China

InvestorPlace – Stock Market News, Stock Advice & Trading Tips

Investorplace.com – InvestorPlace

Context Logic (NASDAQ:EXPECT) is a company that exemplifies everything that has seemed possible with e-commerce over the last decade. It also exemplifies everything that can go wrong. The company appears to have emerged from nowhere to become the third-largest e-commerce operation in the US, largely through selling cheap Chinese knockoffs. WISH shares began trading publicly during the pandemic, as online shopping soared.

After peaking in January 2021, the stock has been in free fall. As consumers turned against it and the headwind grew stronger, ContextLogic experienced a serious downturn.

With WISH stock now down more than 93% from its peak in January 2021, it is possible to add the stock to your portfolio. After all, they are very cheap. The company seems to think it could turn things around. And with the current economic conditions — namely inflation and rising interest rates — consumers could soon be hunting for bargains again.

Unfortunately, I didn’t see this Portfolio Assessor Stocks rated “F” will make a significant return in the near term, let alone turning into long-term growth stocks. The company is too dependent on China.

Q4 ContextLogic Figures Show Depth of Weakness

WISH stock had been trading publicly for approximately a month before peaking at $30.07 in January 2020. Since then, it has been declining. For an idea of ​​how dire the company’s situation is, let’s look back at last week when ContextLogic reported its fourth-quarter numbers.

For online retailers, the holiday quarter is the biggest. That’s when people shop for gifts. If there will be any sign of hope that ContextLogic turns things around, Q4 will be the time to see positive results. It didn’t happen.

Its net loss increased to 9 cents per share compared with $3.04 per share a year earlier. That’s all for the good news. Revenue fell 64% year over year. Cash flow is down. The company announced layoffs to its workforce and an initiative to “measure the right size” of its business.

It’s no surprise that afterward, WISH shares fell further.

ContextLogic’s dependence on China

In his Q4 earnings, the CEO of ContextLogic outlined his plan to return to a new era of growth using three “fundamental pillars.” Here’s the plan: “The financial health of our business and Wish’s future growth depend on improving our user experience, deepening our merchant relationships, and achieving organizational efficiencies.”

Layoffs and rightsizing are efforts to overcome organizational efficiency. This part of the plan is entirely within the company’s control. Unfortunately, the other two pillars are mostly related to the company’s dependence on China. And that’s a problem.

When Wish was at the peak of its popularity, consumers were downloading the company’s apps at high speed. They were eager to buy cheap and anonymous Chinese knockoffs without questioning how they got so cheap. That allure made Wish the country’s third-largest e-commerce operation in 2019. However, that reliance on China is fast becoming a liability.

An escalating trade war with China led to tariffs, driving up prices. The US government is starting to crack down on Chinese counterfeit goods. American consumers are turning to China. Supply chain problems persist, making acid more expensive and less reliable. Given that in 2020 an estimated 94% of WISH vendors are based in China, this is a big problem for ContextLogic.

Headlines like “Is the Wish App Legit or Scam” are commonplace, pointing to consumers’ growing distrust of the company.

Bottom line on WISH Stocks

Not everyone is as pessimistic about the ContextLogic situation as I am. Check with Wall Street Journal, WISH shares earned a “hold” consensus rating. The average price target among the six analysts surveyed was $4.35, which would be a very healthy 124% return.

However, even if ContextLogic manages to temporarily stabilize its business and WISH stocks manage a rally, I don’t see realistic prospects for long-term growth. Not without resolving its dependence on China. How the company can manage it — without also stifling its core advantage of selling products at very low prices — is an issue that will be very difficult to overcome.

Given the situation ContextLogic is in, I will continue to avoid WISH stocks.

As of the date of publication, neither Louis Navellier nor any member of the Research Staff of InvestorPlace is responsible for this article (either directly or indirectly) holding any position in the securities referred to in this article.

Louis Navellier, billed as “one of the most important financial managers of our time”, has broken the silence at this shocking “tell all” video… uncover one of the most shocking events in our country’s history… and one step every American should take today.

More From InvestorPlace

ContextLogic’s post Can’t Avoid the Problems That Come From Its Dependence on China first appeared on InvestorPlace.