As ContextLogic Stock Struggles, Consider Betting on Poshmark Instead

Stock Market

The last time I wrote about ContextLogic (NASDAQ:WISH) stock was in August.

The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.

Source: sdx15 / Shutterstock.com

I suggested that WISH stock wasn’t worth more than a couple of bucks.

On the bright side, I did say becoming a logistics and fulfillment business was a smart move. However, its pivot is a risky one and might not work.

In the meantime, I’ve been called on InvestorPlace to discuss the benefits of owning its stock. Looking more closely at the situation. I believe that Poshmark (NASDAQ:POSH), the worst performing internet retail stock so far in 2021, might actually be a better buy than WISH, the second-worst performer so far in 2021.

WISH Stock and a Failing Business

My InvestorPlace colleague Josh Enomoto recently discussed why investors should be asking questions because WISH stock hasn’t performed nearly as well as it should have.

“To me, this sounds like an admission that the company’s core business model isn’t working. Naturally, this will raise concerns about the upcoming Q3 earnings report,” Josh wrote on Sept. 9. “Additionally, ContextLogic really ought to be improving sales, not going backward.”

The reality is that ContextLogic lost 22% of its monthly active users (MAUs) in the second quarter, while quarterly active buyers dropped by 44% to 17 million. As a result, investors of all stripes should consider the ramifications of these events.

In the meantime, Poshmark reported Q2 2021 results in August that were quite positive. According to its Q2 2021 press release, Poshmark reported sales that were 22% higher than a year earlier. Its gross merchandise volume (GMV) grew by 25% during the second quarter. 

As the company pointed out in its Q2 2021 press release, its GMV has increased for the preceding 14 consecutive quarters. So ContextLogic has obviously hit a nerve here but not quite enough to cause a stir.

Who’s Doing Worse?

ContextLogic reported its Q2 2021 results on Aug. 12. Poshmark reported its Q2 2021 results two days earlier, on Aug. 10. WISH had $656 million in sales, while POSH had $82 million in net revenue. 

So, I don’t think there’s any question ContextLogic has a higher valuation. After all, it generates almost 10x as many sales. So, from that perspective, the problems stemming from this ride seem far less sinister than previously imagined.

However, on the bottom line, Poshmark had an operating loss of $2.9 million versus an operating loss of $114 million for ContextLogic.

As I write this, POSH is off 75% YTD versus a decline of 65% from ContextLogic.     

Poshmark has an operating profit margin of -3.5% versus -17.4% for ContextLogic. Profits are both companies’ biggest concern.

That said, given ContextLogic’s sales fell by 6.4% in the second quarter versus a 22.3% gain for Poshmark’s sales, I don’t think there’s any question WISH stock ought to be falling faster than POSH.

The Bottom Line

I’m always pointing out options for investors. For example, in my August commentary, I suggested several ETFs.

“If you must get on the ContextLogic bandwagon, do yourself a favor and buy one of the many online retail ETFs that exist out there or the VanEck Vectors Social Sentiment ETF (NYSE:BUZZ). WISH currently accounts for 2.1% of the ETFs $218.7 million in total net assets,” I wrote.

Earlier in this article, I pointed out that Poshmark might be a better buy. In fact, Finviz.com says that there are 25 companies with a market capitalization of $2 billion or more in the Internet Retail industry.

Of those, ConextLogic has the 20th largest market cap behind powerful businesses such as Amazon (NASDAQ:AMZN) and MercadoLibre (NASDAQ:MELI).

If you’re going to bet your hard-earned capital on a whim of the two stocks, I don’t think there’s any question that POSH is the better buy. 

The ETF options also make a lot of sense.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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