This is not financial advice.
1. Can $WISH Make Money?
Investing in growth is all well and good, but can they actually make money? Will the advertising spend forever be higher than the customer value?
Here's the 1Q earnings call link: https://ir.wish.com/events/event-details/wishs-first-quarter-2021-conference-call. In it at ~27:00 the CFO says: "When we slowed down growth we became extremely profitable". Waaat? Surely they have been growing all along? On annual data it doesn't look like it.
Oh no, they've never made any money
I reckon a lot of market participants see this and conclude WISH is dead. However, if we look at the quarterly data we find a gem.
From the S-1(https://www.sec.gov/Archives/edgar/data/0001822250/000119312520298630/d82777ds1.htm)
So in 1H 2019, when there's no Covid, and they turn the advertising off, they make money. A lot of money. From operations they make $109M, on $870M revenue. At least 10% profit margin overall, and that's in 2019, with no covid. Our revenue is much higher now, and a lot of costs are fixed, and Covid effects will go away eventually.
And before you say that Q2 2019 revenue decreased, this quarter is always lower, as the CFO stated in the Q1 2021 earnings call, which brings me on to the next point.
Takeaway: 10% Profit Margin at any time.
2. Fucking Covid, and Everyone Panicking.
Covid fucked a lot of shit up. Q2 is supposed to bring in less revenue than Q1. When the revenue collapsed to the natural take-up the CEO probably shit himself because he's buried in the monthly numbers. He himself said that in the 3 quarters up to July monthly users are down a large number and he now won't give any guidance.
See here the revenue for every Q, early years I used (annual rev)/4. Q2 2020 is messed up, it's way too high. Q2 2020 is supposed to be below Q1, instead it's $300M (70%) too high.
We had a lot of Covid deaths right around 2Q, so this makes sense, as a reminder here is the Covid death graph for USA. Look at where the peak is.
The earnings call was a shitshow of pessimism, they had so much positive to talk about that they didn't elaborate on, and so the optics are really bad, and I think it's mostly because the revenue got a huge artificial boost from Covid, very similar to the Bitcoin bubble for NVDA and AMD if you want a case study.
When the revenue boost ended, the revenue declined, and everyone panics, twitter is full of retards saying that revenue is decreasing and $WISH is dead. I don't think there's much to panic about: look at the revenue graph, look at the covid graph. Why panic?
Takeaway: Covid fucks shit up, even if you get extra money from it. Things will likely go back.
3. Does $WISH Still Grow?
In this market everyone wants growth. After they see consistent growth they then say things along the lines of "What's the TAM?" or "TAM Big" or "TAM HUGE" or "I Love TAM". TAM Being total addressable market.
The app, in its current shitty state, was able to grow revenues for half a decade at least (it's longer, but S-1 only goes so far back). There's also no way they have completely captured all their potential TAM yet. The revenues aren't entirely the app revenue, but even so, bearing in mind the pandemic of doom, I think the revenue from the core marketplace is respectable and doesn't show signs of a true fuckup like the earnings call sounded like. The revenue is almost as high as Covid-everyone-at-home-time 1H 2020.
Not to mention the optionality that is possible with this company. They built a whole logistics business from scratch, and that revenue just exploded, and now the number one complaint isn't shipping times any more. That is quite a drastic and striking way to solve a problem, yet these guys just went and solved it. I never heard of Wish till a year ago, I live in the middle of nowhere, I look for WISH pickup locations and WTF, there's 6 within a few miles of me. I order something, and the lady at the pickup shop says first thing: "is it a WISH parcel? or...".
Theres also 1Sansome, built from zero, and is growing just fine. What happens when 1Sansome uses the WISH logistics network and always arrives sooner than Shein? Or where you can pick up the clothes from a WISH store?
Then there's finance stuff. Jackie Reses is a business rock star, and she's on the $WISH team. What's this payment services licence in the EU? What are they doing with that? What sort of product/service could they offer with this to buyers or sellers? IDK what they are cooking up, but the potential is there, and just the exact perfect person so happens to be there to execute it.
Takeaway: Growth looks intact, and the optionality is plentiful.
4. But the Insiders are Selling! It's a Sinking Ship!
If anyone tells you this you should congratulate yourself, because you have 100% identified a true specimen of sheeple. It could be family, friends, relatives, I'm very sorry for your loss if it is a loved one, but if they say the insider selling is an issue, there is nothing that can be done, they are sheeple and probably can't think for themselves.
"Insider selling" was selling stock for tax reasons. On some data feeds it looks like insider selling because the CFO fucked up the paperwork. The CFO probably got kicked out for this reason.
I don't know for sure and I don't care about this, because the insiders are so heavily invested in this company it's basically a part of them. If you invest in $WISH you are investing alongside Peter Thiel, Joe Lonsdale, Peter Szulczewski, the Galileo fund guy, Danny(one of the founders), etc. (https://whalewisdom.com/stock/wish).
The insider investors are not sitting still either, they are deeply involved. How did Jackie Reses get there, for example.
Another thing about these insiders, you're dealing with the Paypal Mafia here, I think they know what they are doing. Go and read the Mafia Bosses book, you'll find that this guy doesn't diversify at all, he bets big when he thinks he'll win. Even better, lets look at what public stuff his fund is invested in:https://whalewisdom.com/filer/founders-fund-v-management-llc#tabholdings_tab_link
Diversification is for pussies
You want to bet against the guy that had the gumption to mutiny Elon Musk?
Takeaway: The insiders, including Paypal Mafia people, they are betting big and I think they know things about WISH we don't.
5. But the App Ranking?
I can't think of any other reason other than the android advertising space got competitive. Advertising spend on Android went up a lot from the IOS privacy update. Though if I take a quote from this article: https://www.forbes.com/sites/johnkoetsier/2021/05/19/ios-145-causes-massive-shift-in-ad-spend-to-android/
“It's early days,” he added. “As more users adopt 14.5 and marketers get comfortable with the new normal on iOS, most of us expect ad spend on iOS to fully recover.”
This being a quote from a senior guy in that business. The viewership on IOS is really huge, it doesn't seem likely that advertising money permanently moves to android.
Also if you turn off the advertising, WISH already has a clientele, you don't need big advertising budget for that.
Takeaway: This seems temporary, and people in the industry think it is so. It doesn't matter if the money printer is turned on.
5. Crusty Old Value Investing Thinking
I want to calculate a very rough price I think this business is worth. Then I buy below this, something about intelligent investor, margin of safety, uncle Buffett, MicHaEl burrry, Charlie "I Love Costco" Munger, etc. I want the calculation as simple as possible so that I don't have to think about this. I want a valuation that is roughly what we can reasonably assume, I'm not looking for the worst or best case scenario, because I don't want to think too much about this.
I know they can get 10%+ margin at any time because it's been done, they spend a whole 6 month period with the advertising turned off and it made 10%. In the Avory&Co research (https://docsend.com/view/r35zrpbdzftxbeb2) they think they can get 15-20% margin. WISH thinks it can get 20%+ margin eventually, which I think makes sense as Ebay has a similar profit margin.
OK so how about the revenue? We can safely assume it'll make $3Bn soon. How big can it get? IDK, let's assume there's no financial crash and it gets to $5Bn at some point. Remember they grew at 20%+ a year for a decade already. At a 10% margin that's $500M per year.
OK so what multiple? 20 seems fine. Remember the business can grow. Over the last 10 years the P/E distribution appears like below.
Quick and dirty rough future value: $5Bn * 0.1 * 20 = $10Bn.
Current Market Cap = $4.7Bn.
Before the value investors come out of the woodwork and complain, yes I know it may very well not grow, in which case use a revenue of $3Bn and you still get to a value of $6Bn, in which case there's upside from here.
Also they have no debt, they can take a loan any time for $300M. Even if there is a financial crisis, they can sit and do nothing for 2 years, and in all that time the optionality of the stuff all these very capable people is given no value, which is retarded. We're talking about Reses and Paypal mafia here, in a service that no one else has, that Amazon wanted to pay $10Bn for some years ago and the CEO walked away from.
If a financial crisis hits the multiple is going to decrease, but the company itself will likely do just fine, and grow afterwards, since the formula already works. When good times come back what multiple do you think the market will give this company?
Takeaway: This seems cheap enough that crusty value investors might buy it
6. Relative To The Rest Of The Stock Market
NKLA is an actual fraud, has less cash, no revenue, and a gravity powered truck. It's market cap? $3.8Bn
Luckin Coffee Inc. is an actual fraud, might get fucking delisted from the stock exchange. It has negative Gross margins. It has $500M revenue. It's market cap? $3.75Bn
Let's take a look at some Price/Sales ratios, This table isn't totally correct because I was taking the peak P/S ratios (to study the price run-ups), I can't be arsed to get the current numbers, do it yourself. Even if you half all of the other P/S numbers, the P/S for WISH is retarded.
One of these things is not like the other
Takeaway:
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