Today is shaping up negative for ContextLogic Inc. (NASDAQ:WISH) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
After the downgrade, the consensus from ContextLogic's five analysts is for revenues of US$716m in 2022, which would reflect a painful 27% decline in sales compared to the last year of performance. Per-share losses are expected to explode, reaching US$0.70 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$907m and losses of US$0.62 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target was broadly unchanged at US$3.09, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on ContextLogic, with the most bullish analyst valuing it at US$7.20 and the most bearish at US$1.50 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would also point out that the forecast 47% annualised revenue decline to the end of 2022 is better than the historical trend, which saw revenues shrink 65% annually over the past year By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 13% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect ContextLogic to suffer worse than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at ContextLogic. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of ContextLogic.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for ContextLogic going out to 2024, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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