- 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.
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).
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.
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