ContextLogic (NYSE: WISH) is trading sharply lower in US premarket price action today after reporting dismal earnings for the fourth quarter of 2022. The stock recently rallied after a set of bullish tweets by Citron Research but now faces the proverbial “moment of truth.”
WISH reported revenues of $123 million in Q4 2022. Its sales fell 57% YoY and trailed analysts’ estimate of $152 million. Its revenues have been falling consistently and in the third quarter also sales fell 66% YoY.
Looking at the revenue breakup, in the fourth quarter the company’s Core Marketplace revenues fell 74% YoY to a mere $36 million while Logistics revenues fell 37% to $77 million. Its Product Boost revenues plummeted 64% to $10 million over the period.
The company’s revenues are a fraction of its previous highs. For instance, in Q4 2020, which was the first quarter for WISH as a publicly traded company it reported revenues of $794 million.
To be sure, like most newly listed companies of that year, WISH was also posting losses then. For instance, in Q4 2020 it posted an adjusted EBITDA loss of $118 million which was 15% of its sales.
However, one succor was the strong growth that it brought to the table. For instance, in Q4 2020, the company’s revenues rose 38% while the full-year growth was 34%.
WISH Reports a Massive Loss in Q4, Stock Falls
While WISH’s revenue growth has since turned negative, its losses continue to swell. It posted a net loss of $110 million in the fourth quarter of 2022 which was wider than the $58 million in the corresponding quarter in 2021.
Its adjusted EBITDA loss also jumped almost four times to $95 million in the quarter. The company generated negative free cash flows of $109 million which was over twice the $50 million that it posted in Q4 2021.
WISH CEO Joe Yan tried to put a brave face despite the disappointing set of numbers. In his prepared remarks, he said, “Despite a dynamic and challenging macroeconomic environment, 2022 was a productive year for Wish as we continued the journey of transformation we initiated a year ago.”
He added, “While we are still in the early stages of the turnaround, I’m energized to see the tremendous progress across each of the foundational pillars.”
ContextLogic Expects to Post a Loss in Q1 2023 Also
WISH expects to post an adjusted EBITDA loss between $70 million-$80 million in the first quarter of 2023 also. The company also announced layoffs as it tries to trim losses.
Notably, tech layoffs have mounted even as the overall US job market has been quite strong. Despite layoffs from several tech giants like Alphabet and Microsoft, the US economy added 517,000 new jobs in January. The unemployment rate also fell to a new multi-decade low of 3.4%.
Coming back to WISH, commenting on the outlook, Yan said, “As we enter fiscal year 2023, there remains much work to be done to put us back on the path to profitability and sustainable growth.”
He added, “We intend to maintain a disciplined cash flow and a relentless focus on unit economics to retain a solid financial foundation that will allow us to effectively maximize the business opportunities ahead.”
Citron Research Is Bullish on WISH Stock
The company’s cash pile meanwhile nearly halved to $506 million in 2022. Recently, Citron Research which is best known for its short position on GameStop during the 2021 meme stock rally, expressed optimism over WISH stock.
Among others, it was impressed by its massive cash pile. In a series of four tweets, Citron said, “We were reluctant to mention $WISH until we saw the Super Bowl. The $Wish business model seemed terminal….and then everything changed!!! It has now become the most asymmetrical opportunity in the market.”
WISH stock surged on the bullish tweet by Citron. However, it still has a negative enterprise value which some might see as a sign of undervaluation. However, the company’s falling user base and perennial losses and cash burn have made markets apprehensive about the company which shows in its low valuations.
Citron meanwhile believes that given the management reshuffle following which ContextLogic added several Google, Amazon, and Alibaba executives, it seems “hard to bet against considering the company’s coiled spring position.”
Incidentally, even GameStop hired executives from tech giants like Amazon and Alphabet. Many bears had then said that the move would not help as the company’s core business is in terminal decline.
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