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ContextLogic: Wish stock has more downside but don’t short it

ContextLogic (NASDAQ: WISH) stock price has crashed to a record low as investors remain concerned about the company’s future. The parent company of the popular, dropped to an all-time low of $7.8, bringing its market cap to over $185 million.

The implosion of continues is a leading e-commerce brand known for its cheap and often sub-par quality products. The firm competes with popular e-commerce brands like Amazon, Temu, and eBay among others. 

ContextLogic became a popular stock during the meme investing craze of 2021. At the time, the company’s stock surged to a record high, which made it a $4 billion company. 

Like other popular meme stocks like AMC, GameStop, and Blackberry, these gains were short-lived as their shares plunged.

Now, there are concerns about the company’s business. Earlier this week, the management said that it will do a reverse split for the stock. The goal is to ensure that the company will regain its compliance with the Nasdaq listing. In a statement, the firm said:

“The reverse stock split is intended to enable the Company to regain compliance with the minimum bid price requirement for continued listing on The Nasdaq Global Select Market.”

A reverse split, such as the one being carried out by Mullen Automotive, is never a good sign. It usually means that the stock has plunged so hard and that the management hopes to make it attractive to investors.

Don’t short Wish stock

The biggest concern for ContextLogic shareholders is that the company will likely need to raise capital soon. For one, is a cash incinerator. The most recent results showed that the company’s cash and equivalents dropped to $719 million from the previous $1.1 billion. It had over $2 billion in December 2020.

The company’s revenue growth has crashed and losses are expected to remain high for a while. Its annual revenue in 2021 came in at over $2 billion. In 2022, the company made just $571 million. This happened as the monthly active users crashed to just 24 million in 2022 from a peak of over 107 million in 2020.

A key challenge is that the management’s strategies seem to be not working. One of these strategies is to rebrand the company. While brand refreshes are goood, I don’t see how they will lead to better sales in the future. In the recent earnings statement, the CEO said:

“We successfully launched a rebrand campaign. Our new brand incorporated a new logo, iconography, imagery and color palette, and was accompanied with a refreshed mission statement Bargains Made Fun, Discovery Made Easy.”

Therefore, from a fundamental perspective, I suspect that the ContextLogic stock will remain under pressure for a while. The only hope is where the meme stock investing craze comes back and pushes the stock much higher in a short squeeze.

Therefore, while I expect the stock to continue dropping, I would not recommend shorting it because of short-squeeze risks.

The post ContextLogic: Wish stock has more downside but don’t short it appeared first on Invezz.

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