ContextLogic's Fintech Entry: The Fintech Dream Team
Summary
- WISH's stock price has seen a significant decline since June with the market overreacting to CFO resignation and disregarding several bullish events that have occurred.
- WISH is unveiling new management appointments in Jackie Reses' organisational growth oversight, with more to come.
- WISH's entry into merchant payments will have its major investors playing a behind-the-scenes role to support, and the new business value can grow rapidly to surpass WISH's current market cap.
- WISH also has its pick of partners in consumer fintech, especially amongst Buy Now Pay Later companies keen to tap on WISH's unique offering.
- WISH short interest over float is likely grossly underestimated and potentially more than 28% by my estimates.
Synopsis
Following from my previous article on ContextLogic (NASDAQ:WISH) on 26 June 2021, this detailed article covers events which has occurred in the time since for the company, and their implications - reaffirming my very bullish thesis on the stock following these events. The topics covered are in sections as follows: 1) WISH's CFO resignation in June and the market's overreaction following the news, with the stock price falling and an analyst's downgrade because of the resignation; 2) The new CTO and further management appointees expected soon to come under Chair Jacqueline Reses; 3) WISH's fintech entry and the behind-the-scenes role of WISH's leading investors providing their insight and network to support the company's plans; 4) The potential valuation that WISH could rapidly build its business in merchant payment processing solutions business to, which would dwarf WISH's current market cap; 5) The potential partners for WISH in consumer payment processing and attractiveness of WISH as a partner for "Buy Now Pay Later" fintech especially with the fierce competition in BNPL and Square's (SQ) acquisition of Afterpay (OTCPK:AFTPF); 6) WISH short interest as a percent of float, which has likely been widely underestimated and is at 28% by my estimates.
CFO resignation and market's irrational overreaction
WISH's stock price reacted very negatively following news of WISH's CFO resignation on 30 June 2021. This event was followed by a downgrade of WISH to neutral by Evercore, which shaved $2.47 billion in valuation from their price target of the stock, citing the uncertainty to follow with the CFO's resignation amongst reasons for their downgrade. Whilst the news of the CFO's resignation likely boosted bearish sentiment on the stock price, it is a non-material event for the company's fundamentals in my view. Indeed, the news sets up for a bullish catalyst when WISH appoints the successor CFO; we can expect that WISH will attract the best talent available to choose a successor and the appointment will likely take place soon. There is even one ideal potential successor already involved in WISH, who would be the perfect CFO for a recently listed and fast-growing tech company, and otherwise demonstrates the type of top talent that WISH will attract. WISH's board member Julie Bradley was the CFO, Chief Accounting Officer and Treasurer of TripAdvisor (TRIP) from October 2011 to November 2015, with extensive tech and e-commerce C-suite experience, and oversaw TripAdvisor during its December 2011 IPO through its first years as a public listed company. Julie Bradley also has extensive e-commerce experience. Prior to TripAdvisor, Julie Bradley was CFO of e-commerce software company Art Technology, and oversaw its buyout by Oracle (ORCL) for $1 billion in 2011. She was a board member of e-commerce company Wayfair (W) from 2012 until this year when she informed, she would not stand for re-election in February, months after her appointment to WISH's board. Ms. Bradley resigned from TripAdvisor in November 2015, to spend time with her two teenage children before college. Perhaps Julie Bradley is now prepared to return to a full-time C-suite role. Whether Julie Bradley is the next CFO of WISH or not, this demonstrates the top talent we can expect WISH to attract for its CFO successor and the market's negative reaction was not justified.
New CTO - first management appointment under Jacqueline Reses - expect more appointments to come
WISH also appointed its CTO Farhang Kassaei on 12 July 2021. It is important to note that this is the first management team appointment for WISH since Jacqueline Reses' appointment as Executive Chair on 12 May 2021. Ms. Reses' role as Executive Chair is to "lead the company's critical commercial functions including customer experience, brand communications, strategic partnerships and organizational growth" per press release at the time. As I noted in a comment posted on 1 July 2021, "compare the management team of WISH on its website with that of e-commerce platform peers like Etsy (ETSY) or even Jumia (JMIA) (much smaller than WISH) and one will see why WISH currently needs to have and will have a much broader management team bench in its current first year as a public company (WISH has no COO, CTO, Chief Product Officer, Chief Revenue Officer etc., that its peers have)".
We can expect several more management team appointments to come that Jackie Reses will be overseeing as WISH broadens its team in its first year as a public company. (This week at the time of finishing this article, WISH has also announced its appointment of a Chief Product Officer). Whilst I am highly bullish on the appointments of Jacqueline Reses and Farhang Kassaei, not all apparently share this same view. Another Street firm downgraded WISH to neutral last month, and cited WISH's "several recent management changes (new Executive Chair and CTO), creating additional near-term uncertainty for strategic initiatives & investments" amongst reasons for their downgrade. Personally, I find it perplexing that these appointments could be seen to create uncertainty, but then again WISH has been misunderstood and proven doubters wrong throughout its history.
WISH's fintech entry into merchant payments processing - the behind-the-scenes role of WISH's leading investors and the powerful network to tap on
The biggest news on WISH in the past few weeks and one which the market has clearly disregarded, is its 6 July announcement of being granted a payment services license in the Netherlands, which will be passported across other European markets that WISH operates in. WISH announced it would utilize the license to pay its EU merchants directly and explore other payment services in the future. Given WISH's history of continually evolving to seize bigger opportunities under Peter Szulczewski, WISH clearly has major plans in fintech. This observation is further supported by the board appointments since last year - of fintech trailblazer Jacqueline Reses, as well as another fintech/tech leader Stephanie Tilenius (also an alumnus of eBay (EBAY)/PayPal).
Moreover, WISH has the backing and insights of two of Silicon Valley's most successful tech founders and investors, in its fintech entry - PayPal and Palantir (PLTR) co-founder Peter Thiel and Palantir co-founder Joe Lonsdale. Peter Thiel and Joe Lonsdale are amongst the largest investors in WISH through their respective VC firms. Founders Fund and 8VC. Peter Thiel - one of the greatest investors in Silicon Valley history - is the "Don" of the legendary "PayPal Mafia", which shaped Silicon Valley with the companies they founded after the sale of PayPal to eBay in 2002. Joe Lonsdale is one of the members of the PayPal Mafia. To understand this and the tremendous implications this holds for WISH's fintech entry, we should recap back on tech history.
Peter Thiel was CEO of PayPal (PYPL) from until October 2002, when it was acquired by eBay for $1.5 billion. PayPal (originally X.com), had been the merger of Elon Musk's online bank and payments system X.com with Peter Thiel's payments company Confinity, and the merger took place in March 2000. Elon Musk had been CEO of the combined entity X.com after its merger until October 2000, before he was ousted as CEO and replaced by Peter Thiel. After Mr. Musk's initial disappointment over the event, and his concern that the plans he intended for X.com would not be done if he were not CEO, Elon Musk recognized that the company under Peter Thiel would be just fine. Elon Musk continued to provide his backing to the renamed company PayPal thereafter, investing in subsequent rounds and being PayPal's largest shareholder until its 2002 sale to eBay. The rest, as we know, is history, with Elon Musk, Peter Thiel and the rest of the "PayPal Mafia" moving on to further tremendous success. Peter Thiel described Elon Musk as being his good friend in a 2019 event, and Mr. Thiel was an early investor and board member in Mr. Musk's SpaceX. After the PayPal buyout by eBay, the members of the "PayPal Mafia" went on to revolutionize Silicon Valley in their respective own undertakings - Tesla (TSLA), SpaceX, Palantir, YouTube, LinkedIn, Affirm (AFRM), Yelp (YELP) - the list goes on. Still, we could imagine in the alternate path realities, the fintech colossus that PayPal would have become under Mr. Thiel or Mr. Musk had it not been sold, given that PayPal today is a $353 billion market cap fintech giant. PayPal would also likely have become the dominant behemoth in digital banking and payments fintech over a less more fragmented fintech universe that there is today.
Now, a Peter Thiel backed fast growing e-commerce company is entering into payments fintech and with the insight and backing of its network to ensure its success. Joe Lonsdale describes the involvement of WISH's early investors in playing a role in WISH's growth in his reflections on the investment excerpt below. (Joe Lonsdale, co-founder of Palantir and VC firm 8VC amongst other companies, and who began his career working at PayPal whilst in Stanford, led the angel investment in WISH and co-led the Series A through his 8VC. Mr. Lonsdale introduced WISH to Founders Fund, which invested in WISH's Series C). Mr. Lonsdale also notes in his posts, WISH has faced doubters throughout its history and even during its IPO when it was disregarded in the type of media coverage that a major tech IPO should normally attract.
"Investors are often glorified cheerleaders, and Peter and his key lieutenants deserve all of the credit for Wish. But there are times when we get to play a small role in a company's growth. In the early days, we brought in investors and advisors to help Wish wherever we could. Jerry Yang, who participated in the Series A we led, helped navigate a variety of strategic issues including China. Michael Ovitz helped Peter iterate on branding and acquire the domain Wish.com…Fortunately, Hans Tung at GGV, who heard about Wish via his network in China where merchants were starting to have a lot of success on the platform, ended up leading the rest of the Series B in 2013. Since then, Hans has been extremely helpful, drawing on resources from his networks and experience with big wins in this area, and offering great advice. Ahead of Wish's Series C, my friends at Founders Fund decided to take another look and Geoff Lewis and Brian Singerman ended up leading the round. Ever since, Brian has been a very helpful person to have around the table. Yuri Milner of DST, who maintains a great network in China and has had some of the biggest investment wins globally, led the D and the E..."
In the same way as described above, we can explore how Peter Thiel and Joe Lonsdale likely have been actively involved in assisting WISH's fintech plans through their network and insight, and that the entry has been some time in the making. In August 2020, WISH appointed Stephanie Tilenius and Julie Bradley to the board. Currently CEO and co-founder of Vida Health, Stephanie Tilenius is also a former Google (head of commerce and payments) and eBay executive, and has a wealth of e-commerce, payments, and tech expertise. Stephanie had joined eBay in March 2001, shortly before eBay's 2002 acquisition of PayPal. In January 2004, Stephanie became Vice President of PayPal (under eBay) merchant services.
In December 2020, WISH appointed Jacqueline Reses to the board. For the uninitiated, a profile of the multi-talented (finance, tech, fintech, M&A etc.) trailblazer Jackie Reses could be found here. (Ms. Reses has also recently co-authored a sublime fintech vision piece here). Subsequently, Jacqueline Reses was appointed as WISH's executive chair in May 2021. Peter Szulczewski described during May's Q1 Conference Call: "When I met Jackie over a year ago, I was so impressed that I had to get her to join our board." Therefore, Peter Szulczewski became acquainted with Jacqueline Reses in 2020, presumably from an introduction. Mr. Thiel's Founders Fund has close connections with Ms. Reses, who is involved in several of its portfolio companies. Founders Fund is one of the lead investors in Brazilian digital bank Nubank and Nubank appointed Jacqueline Reses to its board in May. Jacqueline Reses was also appointed to the board of payments fintech Affirm this year; Founders Fund is a major investor in Affirm and Affirm was founded by PayPal co-founder Max Levchin. As Joe Lonsdale described, WISH's major investors are playing a role in the company's growth wherever they can, bringing a multitude of possibilities for WISH in fintech and across its businesses.
We could certainly speculate that there would be further members of the PayPal Mafia, PayPal alumnus or other top tech leaders involved in or partnering with WISH, from the network of WISH's major investors. Dare we say, that Mr. Musk - with the close ties of WISH's major investors and board to him - could be involved in WISH in the future? Elon Musk's only directorship outside of his founded companies is on the board of entertainment conglomerate Endeavour Group (EDR), the parent of UFC and other entertainment assets. Endeavour CEO and major shareholder Ari Emanuel is on the board of WISH. The insight for WISH's fintech expansion as well as the brand publicity that Elon Musk brings would be immensely valuable. Remember that WISH does have significant spend on marketing expenses for its high growth and product expansion - and that is the only reason why its bottom-line is unprofitable. Whilst WISH forecasts profitability in 2023, a boost in brand publicity and recognition - crucial for e-commerce and fintech companies - expediting WISH's reduction in marketing expense and profitability would certainly be very helpful.
WISH - Merchant Payment Solutions potential
WISH's initial focus with its payment services license in Europe looks to be on merchant payment solutions for its merchant base. We could envisage this to encompass a single full-service platform of merchant payment services - that would allow WISH's merchants to accept electronic and mobile payments across multiple payment methods and at a later stage, physical point-of-sale. Physical point-of-sale would ideal for roll-out across WISH Local brick and mortar store partners, as WISH Local expands its physical stores partner network. With WISH's powerful data analytics that it uses already in its e-commerce platform, it will be able to build industry leading analytic tools for merchant payment processing services.
The comparable company in merchant payment solutions would be Euronext listed payment processor, Adyen (OTCPK:ADYEY), except WISH's service is likely to be SME-oriented and for a much larger number of merchant clients that WISH already has using its e-commerce platform. Adyen, on the other hand, focuses on large corporations and has a relatively small number of large corporate merchant clients numbering in the thousands.
Let's explore how WISH can grow its new merchant payments processing business into a valuation that is far more than its current market cap, within the next 18-24 months. WISH presently has a market cap of $6.05 billion and enterprise value of $4.32 billion as of 30 July 2021, and trades at a mere 1.29x Enterprise Value to Sales. In comparison, Adyen has a market cap of EUR70.67 billion ($84 billion) and an enterprise value of EUR68.01 billion ($80.83 billion). Adyen trades at an Enterprise Value to FY 2020 Sales multiple of 99.4x (2020 Net Revenue of EUR684.2million). Even assuming a 30% revenue growth rate in FY2021, this translates to 76.5x enterprise value to forward FY 2021 revenue for Adyen.
WISH's estimated revenue for FY2021 is $3.348 billion. Although Gross Merchandise Value is not disclosed, we could estimate WISH's GMV based on an illustrative 15% commission fee - translating to a hypothetical GMV of $22.32 billion. WISH's merchants use other e-commerce platforms. for online sales apart from WISH, therefore the potential processed volume of WISH's merchant base alone for payment solutions would be significantly more than WISH's estimated GMV. However, let's assume potential transaction volume equivalent to GMV of $22.32 billion. Adyen, which deals mainly with large corporations, had a gross margin of 1% of processed volume in FY2020, which is lower than peers like PayPal etc. Let's assume WISH will derive a higher margin of 2.5%, due to its merchants being mostly smaller, SME sized companies. 2.5% of $22.32 billion is equivalent to revenue of $558million. If we assume a revenue multiple of 10x, this would translate to a future valuation of $5.58 billion, whilst a revenue multiple of 20x which is comparative to many listed payments companies (Affirm trades at 21.35x price to sales), would translate to a future valuation of $11.16 billion for WISH's payments processing business alone - significantly more than WISH's current market cap of $6.05 billion. With WISH's fintech dream team, high-growth e-commerce platform, ready merchant client base to tap on and powerful data analytics, we could expect rapid growth in its merchant payments business.
WISH's potential partnerships in consumer-oriented payments fintech
Whilst WISH has over 100million monthly active users, it does not appear that WISH's immediate fintech plans involve developing consumer-oriented payment solutions for its European and global user base. Per WISH's press release on its license, "the license will not have an impact on consumers in Europe." This may be an ideal strategy, given the fierce competition amongst established players in consumer payment fintech. WISH could instead be opting to partner with consumer fintech companies, with WISH having significant leverage via its 100million monthly active user base.
The most obvious consumer fintech partner would likely be "Buy Now Pay Later" consumer fintech Affirm, given the common ties of the two companies. As mentioned, Jackie Reses is on the board of Affirm and Founders Fund is also a major Affirm investor. Affirm is led by its founder and CEO Max Levchin, also a co-founder of PayPal (Mr. Levchin is often described in the PayPal Mafia context as being Peter Thiel's "consigliere"). This potential partnership could involve Affirm offering WISH's e-commerce platform to Affirm's own merchant clients, whilst WISH uses Affirm's Buy Now Pay Later financing solution for its own merchants to offer to shoppers on WISH's platform.
This week's acquisition by Square of "Buy Now Pay Later" fintech Afterpay for $29 billion, has bullish implications for WISH. Square has become part of the FANG/FAANMG stocks and should be a part of the abbreviation, being a bigger titan than Netflix (NFLX). Its Afterpay acquisition puts it in direct/further competition with Affirm, Klarna and Apple (AAPL) amongst others, and comes after its smaller acquisition of music streaming company Tidal. Jack Dorsey is signaling his vision for Square to broaden its businesses across the tech universe, and there are two potential major pieces in the puzzle left for Square to become a smaller Alphabet-like tech conglomerate. The first is in social media - an acquisition of Twitter (TWTR) by Square with the consideration paid fully in stock - would provide considerable synergistic benefits to both companies and provide a neat solution to Mr. Dorsey's dual roles as CEOs of both. The second is in e-commerce - a natural, value chain extension for payment fintech. Several of the major payment fintechs have expanded into e-commerce - last month, Klarna acquired social shopping startup Hero, whilst PayPal has made several e-commerce acquisitions in recent years. WISH would have great appeal as a potential strategic partner for a host of tech giants including Square, not to mention the several suitors that WISH had during its life as a private company. The fierce competition in Buy Now Pay Later fintech and close links of WISH to both Affirm and Square, means that WISH has become even more desirable as a partner. Furthermore, Amazon (AMZN) is closed off to the Buy Now Pay Later fintechs - making the value of a partnership with WISH all the more attractive.
Ultimately, WISH has a multitude of options to choose from, whether it decides to develop its own consumer-oriented payment solution or partner with its choice of established players.
WISH's short interest as a percent of float
There has been a wide range of short interest as a percentage of float figures quoted for WISH in the past couple months. Fintel had it at 30% at the time of my last article in June, whilst Bloomberg stated 40% also during June. On the other hand, S3 has consistently had single digit figures over June to July- 7.69% on 16 June 2021, 5.87% on 29 June 2021 and 7.67% provided on 17 July 2021. Fintel's had it at 13.53% in July. One Street firm that downgraded WISH last month had a section on its short interest which it stated was at 5%. Recent bearish articles that one finds on WISH (on other financial media sites) even state low single digit area figures in their claiming that WISH has little short interest and that shorts have covered. Based on my own estimates of WISH's true float, my estimate is that short interest as a percent of float is at about 28% or more. It is important to understand that calculating short interest as a percent of float is an art not a science and attracts much debate. One needs to conduct their own research and exercise subjective judgement for their own indicator, rather than only looking at figures provided by the various data providers.
I will explain: WISH's shares outstanding comprises of 619 million shares, of which 431,558,320 shares are Class A common stock and 109,059,160 shares are Class B stock. Now we need to determine the float; the number of shares available freely, and this where one's judgement is required.
The eight largest shareholders of WISH who have been investors prior to their IPO is shown below, and total 469,625,914 shares. The insider lock-up applying to existing investors prior to IPO, directors and employees, expired in May. The float numbers used in the calculations by most various data providers now include most of the major shareholders as part of the float since the lock-up expiry. However, none of these eight major shareholders are likely to be inclined to sell even a single of their holdings anytime soon - and certainly not when the stock price is about 60% below IPO price and significantly below fund raising valuations at various points at a private company. Even when WISH's stock price returns to its IPO price levels, the long-term view of WISH's growth and upside means that these top holders are likely to maintain their current holding levels.
My figures below that excludes eight of the major shareholders from the float is conservative. Per prospectus, WISH had 135 Class A shareholders and 89 Class B shareholders prior to IPO, and thus there is still significant allowance for other smaller insiders selling, which are included in the float calculation. Other significant shareholding blocks held by institutions such as Comprehensive Financial Management (9.06 million shares), JS Capital (8.345 million shares), Wellington Management (6.199 million) and others, are included in my float calculation.
Source: WISH company filing
The above leaves 149,374,086 shares as the float.
WISH has attracted significant retail interest, especially amongst "diamond hand" holders who intend to hold for significant outsized gains. If we assume 500,000 retail holders in WISH with an average of 100 shares, this totals 50 million shares taken out of the float and would account for (only) 8% of WISH's shares outstanding. 8% retail ownership would not be high amongst the stocks popular amongst retail investors. The highest case of retail ownership is likely AMC (AMC), which reported 80% ownership of its shares outstanding in June owned by retail investors. Removing a hypothetical 50 million shares would leave us with a total of 99,374,086 shares in the float. S3 figures for number of shares shorted in WISH was 28.32million provided on 16 July 2021. Using this figure over my calculation of an indicative float figure, gives a short interest as percent of float of 28.4%. There are other holders that should be excluded from the float that I have not incorporated. We should note that passive mutual funds are invested in WISH that seek to mirror a specific index and thus such funds ought to be excluded from the float too. The actual float using a less conservative methodology could certainly be lower than above and the short interest then potentially above 30% as a percent of float.
Furthermore, we can easily test the claim that bearish articles make that shorts have left WISH and covered significantly. Simply, visit the Nasdaq website and look at the number of shares shorted. Nasdaq's data is only up till end of June (where the number of shares shorted was still high), so we can refer to S3's figure of 28.32million shares shorted that it provided on 16 July. Comparing this with Nasdaq's data throughout WISH'S history as a public company and the latest number of shares shorted of 28.32million is close to its highest ever. We can refer to Jim Cramer's comment on WISH back on 26 April 2021 referencing to its 44% short interest then: "Forty-four percent of the float is shorted. That's way too high. I bet you could have a bit of a run, here." On 15 April 2021, WISH had 25,264,268 shares shorted per Nasdaq, which is even less than the number of shares shorted now. Moreover, retail investor holdings in WISH have only grown since then which is arguably taking out more shares from the float. Average daily share volume did increase significantly from May to June, but has since declined significantly again (although not back to May levels).
Source: Nasdaq
Conclusion
WISH has had several significant events take place over the past two months, including much bullish news which the market has failed to recognize. Although the market has disregarded this presently, as WISH unveils more positive developments, this deep mispricing of the stock will be removed and the market will reflect WISH's true value. There is major upside for WISH from its current levels, in my view.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of WISH either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (62)
Jackie Reses was very much in command/hands-on in the call. Now they should appoint Jackie Reses as CEO (even if just interim), so that WISH can be valued more towards a SPAC for the multiple optionalities (as a Jackie Reses led star team with multiple vertical potential and assuming achieving breakeven FCF should be), than a classic value style declining business.
Klarna was valued at $46billion in its last Softbank led funding round, but being a private company still, has received less attention compared to Affirm.
Klarna has been highly acquisitive (via outright takeovers and also rumoured minority equity shareholdings it holds in public listed fintech) and active in partnerships, amidst its viewing BNPL as being "infrastructure" for the broader connected verticals particularly in e-commerce. This week Klarna unveiled its "super app", a clear head-to-head vs PayPal. So the question is, does this have any greater significance for WISH (beyond a BNPL partnership)
Hope that Jackie Reses will be on the earnings call this time. The c-suite is much stronger now, but most importantly amongst the executive team, Jackie Reses is an accomplished leader in her own right. There are things in WISH that evidently need work on to turnaround back to growth, and Jackie Reses is likely the one that a hands-on founder CEO will listen to most when improvements, feedback and changes are highlighted to him in his course of work.
Yes as you mention it will likely be at least 3 quarters for impact (return to growth) and likewise as guided by company. The medium term hurdle (9-12 months) for WISH is not to demonstrate profitability, but (and this is a lower hurdle) to restore the revenue growth narrative or demonstrate what is the core, stable number of “sticky” active buyers amongst the monthly active users (became WISH valuation is priced for declining numbers). Before its last earnings, WISH was company with a record of growth (albeit volatile growth), a compelling narrative and multiple verticals with potential. It still has the multiple verticals with significant potential and a compelling narrative but that core driver of growth and the accompanying growth narrative has stalled. So now they need to rework and regroup their product quality listings, expand social e-commerce functions and design, and maintain/improve their improvements in logistics and customer service, whilst cutting back marketing expense.
Bearing in mind that WISH has its roots in software engineering and the CTO and CPO are ex-Google in addition to CEO/Founder, it would be good if they can also attract senior manager talent from social media/design-oriented/customer service oriented tech companies, since the areas of social e-commerce/design/customer service are to be expanded on.
It would seem logical that the next coming partnership for WISH in its Korea and Japan expansion is with Naver and Softbank's extended ecosystem. Yahoo Japan shopping is the third largest e-commerce site in Japan and has been falling behind over the years against the no 1 and 2 Amazon Japan and Rakuten. Next could also be integrating WISH into Line Pay/PayPay for Line users to shop and pay in WISH.
Note the commonality of Jackie Reses who was formerly with Yahoo and was on the board of Alibaba; Softbank being the early and major shareholder in Alibaba. A partnership with Z Holding's businesses/Softbank/Naver appears like it could be the next partnership to come, and makes a lot of sense for both potential partners.news.cafe24.com/...
To recap; last year's appointment of the two fintech trailblazer board members, the recruiting of payment/fintech engineers at the start of this year, the granting of EU license. Appears like their fintech work-in-progress is getting advanced.
jobs.smartrecruiters.com/...
taking advantage of to outreach and acknowledge its recent enlarged retail base and the gifting/anointing of meme stock status to it earlier
in the year. We had the first instance of this now from Jackie Reses per below tweet. Is one tweet potentially highly significant? Yes, especially for WISH which has so many things going for it that it is working on, outside of one disappointing quarter, and which needed to really start getting the messaging out of
Peter Szulczewski 's vision for the company. Expect more social media outreach from WISH's chair/management to come now - free, direct marketing amidst WISH's cutting back of its marketing expenses. This
tweet should also be of relief to WISHers who were concerned on Jackie Reses not being in the earnings call.
twitter.com/...Look at another of Jackie's recent tweet (a gif post), and her replying to tweets of her followers, and she clearly recognises the key role of Twitter and social media to outreach in a fun way, with the opportunity it provides to ignite and excite.
twitter.com/...Jackie Reses is a multi-talented trailblazer across fintech, tech, corporate
strategy and finance...exec chair of WISH, board member of Clover Health and formerly on the board of Virgin Galactic...add in to that her significant, growing online following and her social media outreach.. and you have the soon to be pin-up Queen of retail investors, shortly ascending to the currently vacant throne...
disappointing quarter results.During the earnings call, there was limited discussion on the various recent and new businesses of WISH (eg fintech entry, 1Sansome progress) etc. None of the Street analysts asked about the payments license and WISH’s plans there, nor have covered it in their report updates. The question is, the timing on when the company provides more details on its work in progress in the space. The fintech payments expansion has clearly been in the works for some time - as the appointments last year and the advance time required for the application process of the EU licensing approval would affirm. Further, take a look at the recruitment that WISH had conducted for senior software payments engineers at the start of this year. www.builtinsf.com/...
This ad was removed in February. There clearly has been payments software development in progress in the time since and the ad provides big clues on the work in progress on payments processing. Can we see a major unveil of this within the next quarter? It is certainly possible. To those who think there are no short term catalysts, on the contrary, there certainly are many potential short term catalysts: new CFO before year end (given the time thus far, I do not expect any run-of-the-mill appointment but it to be an appointment that excites in calibre), details unveiled on fintech/payments work in progress, potential new partnerships especially in BNPL, further partnerships from Jackie Reses network.Many have recently speculated on WISH being a buy-out candidate at these low prices. I do not view this likely at this stage, simply because WISH has so much going for it still on its own. The margin of safety from a private market value buyout scenario for WISH will always be present, in the same way that it was present for the likes of Tesla and Snap etc during their most dire periods in their recent history as public companies.
The more likely corporate event for WISH is for a tech giant or prominent investor building a minority stake at this low price range. Less known on WISH is that JD.com has been a long-term investor in WISH, but you could have one of the other Chinese tech giants buying shares on the market, not to acquire but to have a minority shareholding. Tencent did this previously in buying a minority stake in SNAP on market at its lows, and Alibaba of course had a rumoured interest to acquire WISH as a private company. So a tech giant emerging with a minority stake is certainly out there.
Even prior to the after hours decline post reporting, WISH was trading deep below IPO price of $24 - and arguably each of the four above points had been reflected to different degrees, vs the IPO price of $24 or past private market valuations that reflected a clear blue skies outlook.There are a few bullish take-aways from the call. In my first WISH article I described in detail the opportunities for WISH to expand in social e-commerce offerings, given that the majority of its user base was Gen Y and Z. There was a specific addressing during the call of the social e-commerce opportunity and expansion that has been rolled out recently (eg two weeks ago they began live streaming influencer and shopping events) - great expansionary moves in social commerce. This is a positive for WISH to cement itself as the “Snapchat of e-commerce”. WISH also discussed its intent to reduce marketing spend as it optimises its customer base and works on improving retention. This is positive and hopefully means they will subsequently demonstrate a first profitable quarter as a public company sooner than later.
From Peter Szulczewski' comments, it appears that the company is centred on an assumption that with a reduction of their marketing spend, they will not have any meaningful new customer conversions in the meantime- quote" We have already begun to significant cut back our digital advertising spend and we've been focused on maintaining retention of our existing user base in the near-term. We believe new buyer conversions will be minimal."
I hope that this is just downplaying expectations and that there is a recognition internally that whilst the company reduces its traditional marketing spend (eg cutting back ads on Facebook, sponsorship, promos etc), it need not necessarily have a correlated decline in new users conversions and they should more aggressively be taking advantage of essentially free, non-traditional advertising opportunities. Yes, WISH is highly followed and active on TikTok etc in its existing marketing outreach, but what about directly tapping the recent retail following and enthusiasm? WISH came to be anointed as a meme stock in the previous quarter in the mysterious ways that select stocks are “gifted” with meme status, and with it the accompanying priceless publicity opportunities as well as the new cold, hard cash in the bank. For a company whose long-term bottom-line and thesis is dependent on its marketing spend variable vs revenue (probably more than any other meme stock), it has not directly utilised the free marketing opportunity of an active retail investor base and its enthusiasm in a meaningful way or directly acknowledged its new investors (eg the AMA/Q&As and social media outreach that GME/AMC/CLOV and other designated memes have done directly with its respective bases).WISH has acknowledged it has its work cut out for the next two quarters of the year - there were determined words, in my view - so the rest of the year will be a real crunch-time for WISH prove the numerous angles they have at their disposal. In the near term after the AH price drop, there will be a price battle between the bears and bulls (the below expectation results but with a surge in WSB attention following the price drop) but beyond this, WISH's destiny is in its own hands.
Shein is approaching a possible $50billion valuation for its anticipated IPO. In time, 1Sansome's growing to just a fraction of this would be worth more than WISH's current entire market cap.
We can expect more management and top talent appointments to come, as WISH has its several business segments with some much growth ahead. So WISH will have a deep management bench across its many business segments with executives running each/executing the day-to-day according to Peter Szulczewski's vision. Jackie Reses' oversight of organisation growth and experience including at Square where Jack Dorsey has implemented a deep management bench across its businesses and new initiatives, will be highly valuable for this.
they report next week we will see
Merchants payment processing as Adyen does is providing a one-stop integrated solution for merchants across hundreds of possible payment methods they may receive. It is technology at work on the backend, not a consumer facing interface of PayPal where customers need to open a PayPal account or pass through PayPal interface. So if I were a merchant on WISH and selling through several other e-commerce platforms , and receiving payments through multiple methods including PayPal, I’d rather have a one-stop solution rather than the cumbersome dealing with multiple methods, plus high-fees of PayPal. Now if WISH offered me this Swiss Army knife style one-stop solution with its convenience and cost-saving, I would certainly be keen to take it up.
Europe licensing obtained is the first market and no doubt other markets will follow – the example of other fintechs has shown that multi-market expansion can be rapidly rolled out in a short timeframe. Having the technology in place is the key versus the market licensing hurdle.
The expansion into fintech/merchants payments solutions is also going to drive a virtuous cycle and bring other benefits to WISH’s other businesses. WISH’s marketing spend has been to drive customer growth in order to be one of the top choices for WISH’s merchants to list on. With a merchant payments solution, there is another potential compelling reason for merchants to use WISH and bring new merchants in. WISH customer number growth has slowed this year as WISH focuses on higher value customers – could this change with the new business revenue source from merchant payments solutions to compensate for lower value customers? It is possible, and the faster merchant and customer growth can drive the ad and logistics business revenue too.
We will see what WISH says when it reveals its work in progress in merchants payments solutions in more detail.
As to Buy Now Pay Later, WISH uses Klarna in some markets but it would seem like this could be replaced – Klarna itself has moved into social commerce with a recent acquisition in July. WISH also has a “Pay Later” that is an option to pay a second payment within 30 days but this is much more limited compared to the BNPL fintechs, and is not bringing in new customers or merchants into its platform as a partnership with an established BNPL like Affirm would. WISH with its 100million monthly active users, the majority of which are Gen Y and Z (the main users of BNPL) and its mobile interface, is very ideal for BNPL. At the same time, WISH has had a significant proportion of very low priced items sold that don’t require BNPL hence it likely has not been a major priority in the past over other priorities. But as WISH has been expanding its product platforms (into womens fast fashion with its brand 1Sansome etc) and brand labels on its platform- more demand for BNPL. The BNPL partner for WISH will have all the incentive to support WISH in its e-commerce platform – Amazon is closed to BNPL, all the more reason for a partner to support WISH.
See Jackie Rese's recently authored "manifesto" for the future of fintech that I linked and we can be assured, they are aware of all fintech expansion options to tap on their massive customer and merchant base.
Further, although WISH expects profitability in 2023, it could turn a profitable quarter at any time it Wishes by reducing marketing spend. As Amazon has done at earlier points of its history and as WISH has done before as a private company, WISH at some point is going to demonstrate a profitable quarter whereby growth is still maintained, to silence its many detractors. It may not be this quarter, but it will be sooner than later and could be at any quarter within the next 6-12months. 2023 is a long time away, and there is a chance that winter may have arrived then for tech/growth in general – in which case, demonstrating a profitable financial year is going to be ignored by the market then. WISH has a strong net cash position, but whenever the tech winter comes in coming years/this decade, WISH will want to be in a consolidator type position where they have resolutely demonstrated the profitability of their business and has its several existing and new business segments outside of core Marketplace, in full bloom (Marketplace, Product Boost ads, social entertainment, logistics, fintech payments, women’s fast fashion). Then it will be able to pick its choice of acquisition add-ons/investments/partnerships to complement its ecosystem. We can be assured that WISH has plans for this – look to the experience of Peter Thiel in stewarding PayPal through the 2000 dot-com crash, foretelling the coming dot-com crash beforehand and raising as much funding for PayPal at prime valuations at the dot-com heights.
So watch whenever WISH decides it is time to lower its marketing spend, demonstrate profitability for a quarter and prove its many detractors wrong.
