Start the conversation
The COVID-19 pandemic has transformed e-commerce more than any other time since its inception. That's created a wave of new investment opportunities, but not all of them are worth owning…
Sales skyrocketed as brick-and-mortar stores took their business online using platforms like Shopify Inc. (NYSE: SHOP), Etsy Inc. (NASDAQ: ETSY), Chewy Inc. (NYSE: CHWY) and Amazon.com Inc. (NASDAQ: AMZN). People's buying habits changed forever. In the third quarter of 2020, e-commerce increased 36.7% over the prior year according to the U.S. Census Bureau.
Even as stores have opened back up and lockdowns have slowed with the distribution of a vaccine, buyers and sellers are now convinced online is the way to go. In fact, a recent survey done by an organization that is part of the United Nations found that most respondents will continue to shop online after the pandemic.
That is why I want to talk to you about one of the most recent e-commerce companies to go public, ContextLogic Inc. (NASDAQ: WISH), the operator of Wish.com, a discount e-commerce platform.
What I Like About ContextLogic Stock
ContextLogic has a lot going for it. Founded in 2010, former Alphabet engineer Piotr Szulczewski wanted to create a more affordable e-commerce platform than Amazon, specifically targeting low- and middle-income customers.
This is done through a mobile first platform that works by having merchants list their products and sell directly to the consumer. By doing this Wish.com eliminating distributor fees for the sellers while providing shoppers with low-priced merchandise. Prices are also kept down as a significant portion of the product available through the app comes from overseas distributors and often times unbranded to keep prices down.
Wish.com is one of the most unique e-commerce platforms, and it shows with how many customers it has been able to acquire and how fast it has grown. It has over 100 million monthly active users in over 100 countries and has shipped over 640 million items.
I like the way that ContextLogic has gone about its business as an evolution of brick-and-mortar discount shopping, and its discovery-based search is completely unique. With over 150 million items listed on its website, it is a formidable competitor to companies like Amazon.
But there's more to the story…
Why I'm Avoiding WISH Stock
While the business model is unique and offering a product many others are not, it is unfortunately not translating to the bottom line, and I do not see the path to near-term profitability.
Revenue growth was incredible in its earlier years, and it saw growth of over 200% in 2016. 2019 saw a significant slowdown to 10% revenue growth, which was actually flat year over year if you do not count logistics revenue. Then in the first quarter of 2021, revenue was actually down 2% year over year and has yet to recover to previous highs.
WARNING: It's one of the most traded stocks on the market every day – make sure it's nowhere near your portfolio. WATCH NOW.
This is a stark difference from other e-commerce companies like Sea, Amazon, Mercadolibre, Etsy, and Shopify. Monthly active users also dropped in the last quarter, a big concern for me given how large the total addressable market is for this market and brick-and-mortar opening back up.
This all adds up to a company that I see continuing to lose money. In its most recent quarter, Q3 of 2020, it did $606 million in revenue and lost $99 million. While its growing logistics business could help stem some of the losses, I would need to see much more growth in platform usage.
Shares are up roughly 24% since the IPO, so it might be a good time to take profits if you were an early investor.
And if you're looking for an e-commerce stock to buy now, this is a much better option…
A Better E-Commerce Stock to Buy Now
E-commerce is filled with better investments.
Here at Money Morning, we've talked about Sea Ltd. (NYSE: SE) as one of the best tech stocks Tapping into 300% industry growth and Mercadolibre (NASDAQ: MELI), the Amazon of Latin America, two of the most exciting e-commerce companies in the world. While both are up triple digits since we first spoke about them, and they have been and will continue to be in my portfolio, there are so many companies involved in e-commerce that we don't want to miss out.
That is why I want to invest in the Amplify Online Retail ETF (NYSEARCA: IBUY). It holds great companies like the ones below.
- Shopify Inc. – Facilitates businesses to sell online through its e-commerce platform and logistics services.
- Chewy Inc. – Online pet products retailer.
- Etsy Inc. – Online marketplace for handmade items.
- Stitch Fix Inc. (NASDAQ: SFIX) – Personal styling service that delivers clothes directly to your door.
There is so much more this ETF holds, and you can see all its holdings here. E-commerce will continue to grow, and while it might slow down temporarily as the vaccine roles out, there is clearly a long-term trend that is set to be a larger part of the entire retail market.
The Complete List of Best (and Worst) Stocks for 2021
Wall Street insider Shah Gilani says 2021 could be a gold mine for Americans.
He's showing his subscribers exactly which stocks to buy and which to sell.
But you're getting it all for free – no sign-up or credit card required.
Prices, tickers, and company names will be coming your way fast.
About the Author
Alex Kagin is the Director of Technology Investing Research at Money Map Press. He has spent the last decade working in equity research, most recently with Energy Capital Research Group (ECRG), where he led technology stock research along with working as part of a team developing a customizable financial data platform for securities analysis.
Prior to joining ECRG, Alex spent 8 years at DeMatteo Research, a boutique primary research firm and broker-dealer servicing the institutional investment community. He managed the Tech, Media, and Telecom vertical where he spent time connecting with hundreds of tech executives and hedge funds to get the pulse of the market.
Alex has a B.S. in Economics from American University and previously held Series 7 and 63 security licenses.