ContextLogic Inc

Founded in 2010, ContextLogic Inc (NASDAQ: WISH) provides a global eCommerce platform serving half a million merchants in over 100 countries.

Investment Rationale – WATCH at USD 13.50

• During Q1 FY21, WISH reported a net loss of US$128 million, while the adjusted EBITDA loss was 10% of total revenue.
• It expects to continue reporting losses for the foreseeable future as it requires to incur expenses for the brand development and expansion of market share.
• The Covid- 19 pandemic continued to impact its operations, spending power of consumers, and shipments.
• From a technical standpoint, 100-day EMA (~USD 15.29) is sustaining above the current market price, reflecting a bearish momentum in the stock.

Risk Assessments

• The inflationary pressure amid macroeconomic instabilities can aggravate the operating losses.
• The Group has a history of operating losses and exposed to liquidity risk amid uncertain outlook scenarios.
• The stock price has fallen around 34.00% in the past year, and it is prone to high volatility amid macroeconomic instabilities.

Recent News

Partnership: On 14 June 2021, WISH signed a 2-year deal with CMS, to serve over 300 thousand merchants through its Wish marketplace.

Management Change: On 12 May 2021, ContextLogic appointed Jacqueline Reses as executive chairman of the Board, while Piotr Szulczewski will continue to serve as Chief Executive Officer.

Financial Highlights for the quarter ended 31 March 2021 (as on 12 May 2021)

 (Source: Company Website)

• During Q1 FY21, revenue grew 75% year-on-year, while core marketplace revenue per active buyer surged 76 year-on-year.
• Similarly, adjusted EBITDA grew year-on-year basis, driven by strong ProductBoost revenue.
• The Company witnessed the robust demand on the Wish app.

Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

ContextLogic reported a remarkable growth in sales during Q1 FY21; however, net loss nearly doubled. As of 31 March 2021, the Company reported an accumulated deficit of US$2.3 billion. Moreover, the Wish marketplace has a reputation of carrying fake products that does not match with their description. Meanwhile, there is continued uncertainty regarding product development, shipment, disruptions in sales, factory closures with the Covid-19 pandemic. In a nutshell, we do not recommend investing in the stock in the current scenario. The stock made a 52 week High and Low of USD 32.85 and USD 7.52, respectively.

Based on the aggravated losses, uncertain outlook, we have given a “WATCH” stance on ContextLogic Inc at the closing price of USD 13.50 (as on 21 June 2021), while we look forward to reviewing upcoming market catalysts regarding the plausible profitability.

Clean Energy Fuels Corp.

Clean Energy Fuels Corp. (NASDAQ: CLNE) provides clean fuel for the transportation sector. CLNE was founded in 2001 and is a leading provider of renewable natural gas.

Investment Rationale for Valuation – Hold at USD 11.24

• Recently, CLNE introduced a new visual identity in the form of a new company logo to identify itself with the future carbon-neutral world.
• CLNE signed an agreement with Amazon to deliver low and negative carbon renewable natural gas.
• On the liquidity front, the current ratio since FY2020 is higher than the industry median of 1.07x.
• On the leverage front, the debt/equity ratio since FY2020 is significantly below the industry median of 0.79x.
• From a technical standpoint, 20-day EMA at ~USD 10.33 is lower than the stock price, indicating a potential uptick in the stock price in the near term.

Key Risks

• The market for natural gas as a vehicle fuel is comparatively new. Hence, it faces volatile and unpredictable growth.
• Natural gas price is subject to volatile market conditions. Hence, it could affect CLNE’s margins.
• CLNE has exposure to foreign currency exchange rates related to its Canadian operations, which could affect its financials.
• Consumers may not adopt CLNE’s vehicle fuels in a timely manner, affecting its growth.

Financial Highlights (for three months ended 31 March 2021 (Q1 FY2021), as of 6 May 2021)

(Source: Company Website)

• Due to Covid-19 impacting airports and public transit customer markets, CLNE delivered 7% lower volume YoY in Q1 FY2021.
• Impacted by lower volumes, revenue in Q1 FY2021 was down ~10.3% YoY.
• It led to a net loss of USD 7.45 million in Q1 FY2021 from a net income of USD 0.9 million in Q1 FY2020.
• However, the Company’s cash accretive operations led to cash position surging to USD 116.7 million in Q1 FY2021 from USD 109 million in FY2020.
  

One Year Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

The Company had an agreement with Amazon to deliver ultra-clean fuel to them. It would provide CLNE with a significant growth opportunity. Also, CLNE formalized joint ventures with two energy companies, Total and Bp, to manufacture RNG at agricultural facilities. However, there is volatility in the natural gas price and uncertainty about consumer’s adoption of CLNE’s vehicle fuel. The stock made a 52-week low and high of USD 2.01 and USD 19.79, respectively.

Based on decent growth prospects of the Company, its better liquidity and leverage position than the industry, but considering the loss-making position of the Company, we have given a “Hold” recommendation on Clean Energy Fuels Corp. at the closing market price of USD 11.24 (as of 21 June 2021), and will recommend fresh buying at the right time based on how the Company’s potential growth and profitability turn out. 

*The reference data in this report has been partly sourced from REFINITIV.

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