The Hunt for the Bottom, Deep Value
If you've seen my posts on Wish, I've been bullish and continually calling for the massive gap at $9.42 to get filled. However, Wish and many small to medium size cap stocks have been absolutely slaughtered over the past few months. As far as I can tell, the only selling drivers at this point are forced margin calls, tax harvesting (although I find this one hard to believe), and investors who are sick of being underwater or worried about more downside dumping shares (although again I'm not sure why they'd do it now at all time lows unless it is actually for taxable gain reasons). What I think is happening is a combination of these factors, a small cap selloff, and momentum continuing to carry Wish down to absurdly low valuation levels.
The main downward line of support has held for quite some time now. I thought we were moving away from it until the collapse that started a few weeks back. That support line would put current support (which is dropping every day) in the high 22S, which is crazy to type out considering how far down this stock already is. The cash on hand value of Wish alone is around $1.86, which I will call rock bottom.
I think this stock is extremely and grossly oversold. It is currently valued at $1.9 billion with $1.2 billion in cash on hand. It's burn rate on its cash was reduced significantly as of last quarter to $65 million in losses - giving it a runway of 18 quarters. Conservatively, I think $100 million per quarter is more realistic as they have ramped up hiring and continue to add new talent to the team. Even then, we are looking at 12 quarters until Wish needs to break even or take out a loan to continue operating. Unlike many other companies, Wish has virtually zero debt ($18 million total likely for account/payroll/administrative purposes). Wish's guidance during their last earnings call was for breakeven in Q2 2022, which would make their current runway completely irrelevant and - I do realize this could still be a ways off - they could use that money for other opportunities or a very small buyback program which even just if announced would bolster the share price and investor confidence significantly. I'm cautiously optimistic that breakeven will be sometime in later 2022.
There are a few things going on here that make me think there is deep value in Wish, but during the short term a few setbacks have hurt the company: 1. An IPO that was way too high at $24 per share, which was at the very highest end of the projected IPO range. With an IPO at a time like that Wish was doomed from the start. It was coming off of its best year and its trajectory looked meteoric - likely because covid lockdowns and its since-changed strategy of pay for sales pumped its growth figures through the roof at unsustainable levels. 2. a CEO that was a great concept guy, but a poor corporate governor and unable to transition Wish from a high growth startup phase to the next level. Now that the price has essentially been all but 12.5% erased from the IPO, I will consider it reset and look at this as a new beginning point rather than a failed IPO (which to clarify was extremely successful for the company at the expense of the IPO purchasing shareholders). The CEO and founder Szulczewski has now resigned and the company along with its new CFO and Jackie Reses are looking for the person to take them to that next level on execution. I see his resignation as a very large positive. Szulczewski will remain on the Wish board for the foreseeable future.
I bought into Wish not as a company that IPO'd at $24 and did 2.6B in revenue last year, but as a company that is on track to do just under 22B this year, has a now much more reasonable 40 million monthly average users as opposed to the previous 100 million, and has decided to absolutely gut their advertising spend which was hemorrhaging cash for little to no gain, but just growth for the sake of growth which is not healthy. This is the painful part, the turnaround part, where a company that looked to be too good to true and lured many in at those levels now has to put up or shut up. I think that the market overdid this selloff significantly. I think this is a company currently worth $3-5 billion as-is, and once it's profitable could see its market cap really take off. $7-10 billion is absolutely on the table after profitability.
The gripe I often hear about Wish is that Wish sells junk. Sure, I hear that argument. But Wish sells exactly what the Dollar General, Five Below, or Party City sells - mainly one time use fun products that are non-essential. Look at how Dollar General or Five Below are trading and the price to sales multipliers (hint, exponentially higher than Wish). Wish is an online, modern Five Below which unlike Five Below or other similar retailers uses a legitimate review system so that people know what they are getting into when they buy a product. Moreover, Wish now has many authentic products and every day continue to add new reputable sellers and brands. As of last quarter Wish launched a product quality control campaign to further shore up its ability to find quality partners. That should help combat this stigma, but like I mentioned the cheap or Chinese goods haven't been an issue for the other stores I named, and I don't see it as an inherent problem for Wish.
Finally - the real value blossoming value here is Wish's logistics arm which I believe is on pace to do $600-700 million this year alone, up well over 100% from last year. Wish has paired with some awesome logistics partners and turned this into a revenue and profit powerhouse. The more Wish grows, the more this will spin off.
Do your own DD, I'll be holding Wish throughout next year unless it pops big and I want to cash out.
P.S. don't sleep on Wish getting bought out buy a major player looking to pick up 100 million users' information, 40 million monthly purchasers, a 2.0B per year revenue stream, a logistics company, etc. The lowest reasonable buyout price is $10 a share.
The main downward line of support has held for quite some time now. I thought we were moving away from it until the collapse that started a few weeks back. That support line would put current support (which is dropping every day) in the high 22S, which is crazy to type out considering how far down this stock already is. The cash on hand value of Wish alone is around $1.86, which I will call rock bottom.
I think this stock is extremely and grossly oversold. It is currently valued at $1.9 billion with $1.2 billion in cash on hand. It's burn rate on its cash was reduced significantly as of last quarter to $65 million in losses - giving it a runway of 18 quarters. Conservatively, I think $100 million per quarter is more realistic as they have ramped up hiring and continue to add new talent to the team. Even then, we are looking at 12 quarters until Wish needs to break even or take out a loan to continue operating. Unlike many other companies, Wish has virtually zero debt ($18 million total likely for account/payroll/administrative purposes). Wish's guidance during their last earnings call was for breakeven in Q2 2022, which would make their current runway completely irrelevant and - I do realize this could still be a ways off - they could use that money for other opportunities or a very small buyback program which even just if announced would bolster the share price and investor confidence significantly. I'm cautiously optimistic that breakeven will be sometime in later 2022.
There are a few things going on here that make me think there is deep value in Wish, but during the short term a few setbacks have hurt the company: 1. An IPO that was way too high at $24 per share, which was at the very highest end of the projected IPO range. With an IPO at a time like that Wish was doomed from the start. It was coming off of its best year and its trajectory looked meteoric - likely because covid lockdowns and its since-changed strategy of pay for sales pumped its growth figures through the roof at unsustainable levels. 2. a CEO that was a great concept guy, but a poor corporate governor and unable to transition Wish from a high growth startup phase to the next level. Now that the price has essentially been all but 12.5% erased from the IPO, I will consider it reset and look at this as a new beginning point rather than a failed IPO (which to clarify was extremely successful for the company at the expense of the IPO purchasing shareholders). The CEO and founder Szulczewski has now resigned and the company along with its new CFO and Jackie Reses are looking for the person to take them to that next level on execution. I see his resignation as a very large positive. Szulczewski will remain on the Wish board for the foreseeable future.
I bought into Wish not as a company that IPO'd at $24 and did 2.6B in revenue last year, but as a company that is on track to do just under 22B this year, has a now much more reasonable 40 million monthly average users as opposed to the previous 100 million, and has decided to absolutely gut their advertising spend which was hemorrhaging cash for little to no gain, but just growth for the sake of growth which is not healthy. This is the painful part, the turnaround part, where a company that looked to be too good to true and lured many in at those levels now has to put up or shut up. I think that the market overdid this selloff significantly. I think this is a company currently worth $3-5 billion as-is, and once it's profitable could see its market cap really take off. $7-10 billion is absolutely on the table after profitability.
The gripe I often hear about Wish is that Wish sells junk. Sure, I hear that argument. But Wish sells exactly what the Dollar General, Five Below, or Party City sells - mainly one time use fun products that are non-essential. Look at how Dollar General or Five Below are trading and the price to sales multipliers (hint, exponentially higher than Wish). Wish is an online, modern Five Below which unlike Five Below or other similar retailers uses a legitimate review system so that people know what they are getting into when they buy a product. Moreover, Wish now has many authentic products and every day continue to add new reputable sellers and brands. As of last quarter Wish launched a product quality control campaign to further shore up its ability to find quality partners. That should help combat this stigma, but like I mentioned the cheap or Chinese goods haven't been an issue for the other stores I named, and I don't see it as an inherent problem for Wish.
Finally - the real value blossoming value here is Wish's logistics arm which I believe is on pace to do $600-700 million this year alone, up well over 100% from last year. Wish has paired with some awesome logistics partners and turned this into a revenue and profit powerhouse. The more Wish grows, the more this will spin off.
Do your own DD, I'll be holding Wish throughout next year unless it pops big and I want to cash out.
P.S. don't sleep on Wish getting bought out buy a major player looking to pick up 100 million users' information, 40 million monthly purchasers, a 2.0B per year revenue stream, a logistics company, etc. The lowest reasonable buyout price is $10 a share.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.