I am neutral on the global e-commerce platform ContextLogic (NASDAQ:TO WISH). With its highly visual, entertaining and personalized shopping experience, it differentiates itself from other e-commerce platforms. It was one of many meme stocks that gained momentum in the last year. However, more recently, WISH stock hasn’t been doing so well.

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Stocks are down almost 90% from their highs. That’s not something most investors will be happy with, especially considering how much worse things have gotten for the company in terms of valuation and revenue growth prospects over time. The company has problems with counterfeit and substandard merchandise, which led to its first annual drop in revenue last year. In addition, the founder and managing director of this company has been in charge since day one, but now he is stepping down. We do not yet have an update regarding a replacement.

At the same time, the results for the third quarter (Q3) did not reassure the brand. The outlook for the fourth quarter is also not encouraging, with expected earnings lagging behind the third quarter. Despite Thanksgiving and the Christmas holidays — traditionally a very strong season for the company — lackluster revenue forecasts are concerning. ContextLogic has ambitious plans to completely change the way people shop. The company’s strategy is based on leveraging its data and providing a discovery-based shopping experience for consumers around the world, while remaining affordable. ContextLogic can drive 70% of all sales through discovery with its powerful algorithm. However, a combination of reopenings, slow marketing spend, and counterfeit products are seriously hurting the platform.

Unless these issues are resolved, use a wait-and-see approach with WISH actions.

French regulatory activity highlights a real problem

French authorities asked search engines and online platforms to remove Wish due to dangerous goods on their platform. The move comes after numerous reports claiming that the company offers substandard products on its site. The French government has investigated several online operators. The Wish site is one of many that is under scrutiny. The Consumer Watchdog agency found many unsafe products on it, leading them to take action.

Wish’s prices are low because there are plenty of Chinese merchants who can take advantage of labor laws and cheap labor. Nevertheless, consumers may experience poor customer service. And the quality of the product is not up to par with other larger US companies. Based on their study of 140 Wish products online, authorities estimate that 45% of toys are unsafe and 90% or more of electronics are unsafe. They also noted an alarming rate of cheap costume jewelry.

ContextLogic is solve the problem of poor quality products by implementing new standards on its platform. This will allow verified sellers who offer genuine products and services an opportunity for increased exposure, which could lead to more customers buying what they are selling. Better quality control means higher customer retention and conversion rates. This would potentially prevent Wish’s monthly active users from declining.

The company struggled with product quality. If they don’t take care of this problem quickly, it could cause a wonderful opportunity to be lost forever. Wish is a great site to buy from. But there have been a few issues with poorly executed orders and sizes not matching what was ordered. Going forward, if this area does not improve significantly, WISH stock is in big trouble.

Cash burn is another concern

The company’s revenue increased by $1.8 billion in the nine months ending September 2021. But the company’s negative cash flow over the past year was nearly $1 billion. of dollars. Investing in this business would be a huge risk as it relies heavily on China where most traders are based. The site has encountered many problems with delivery times and quality for products purchased by customers.

The company still has $1.2 billion in cash and cash equivalents and almost no debt or borrowings under its revolver, which will benefit future growth initiatives if needed. The company is struggling with declining profits, sluggish revenue, rising churn and a dwindling cash balance.

Investors are surely thinking about how ContextLogic could raise more cash in the future. Generally speaking, listed companies can go into debt or issue shares to obtain fresh money for their business. Ian Bezek pointed out in his article that the revolving credit facility requires a minimum financial liquidity covenant of $350 million. Based on recent results, it looks like ContextLogic is losing around $100 million per quarter. This gives him a limited amount of money to play with, which is a real problem.

WISH Stock will continue to struggle unless something drastic happens

The internet has made it possible for anyone, anywhere in the world to buy anything they want online. That’s why ContextLogic’s unique strategy of leveraging their data insights with an affordable and entertaining e-commerce experience sets them apart from other companies that offer similar services by giving customers better shopping experiences than this. that traditional stores offer today.

A good business model should generate growth in the number of users. If that doesn’t happen, it indicates that there may not be enough value for people to keep using your service, so they won’t stay long term, which means less income all the way. There aren’t enough signs that things are moving in the right direction for WISH, which means the stock won’t be recovering any time soon.

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As of the date of publication, Faizan Farooque had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and many other financial sites. Faizan has several years of experience in stock market analysis and was a former data reporter at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.