This morning Wish, a well-known mobile e-commerce startup, filed to go public. It joins Affirm, Airbnb and Roblox in filing this week as many well-known and valuable private companies look to debut before the year ends and the holidays start.
Wish’s S-1 (which is filed under its corporate name ContextLogic) is of particular interest given that COVID-19 and the global pandemic have changed consumer behavior around the world in 2020. As going to stores became more risky over time, many shoppers turned to buying more goods from the internet, bolstering e-commerce players like Shopify and BigCommerce, as well as companies that facilitate online payments, like Square and PayPal.
How has the pandemic impacted Wish? It appears to have accelerated its growth.
Looking back in time, Wish saw its revenue growth slow in 2019, before expanding much more quickly in 2020. From 2017 to 2018, for example, when Wish saw revenues of $1.10 billion and $1.73 billion respectively, it grew 57%. But from 2018 to 2019, its revenue only grew to $1.90 billion, up a far-smaller 10%.
More recently, the situation has improved for the digital retailer, with Wish managing to grow more quickly in the first three months of 2020. In the first nine months of 2019, Wish racked up revenues of $1.33 billion. In the same period of 2020 the company’s top line grew to $1.75 billion, up 32% from the year-ago result.
That’s far better than the 10% growth pace that Wish showed in 2019. Wish’s growth acceleration helps explain why it is going public now: it has a growth story to tell investors.
But the company’s accelerated growth has come at a cost, namely rising losses. During the first three quarters of 2019, Wish posted net losses of just $5 million, before some preferred stock costs pushed its total deficit to $12 million. In the same period of 2020 Wish lost a far steeper $176 million.
Wish’s falling gross margins have not helped. In 2018, Wish had gross margins of 84%. That number fell to 77% in 2019, and then to just 65% in the first three quarters of 2020.
But the e-commerce player did have some more positive details to show, as this table details:
Improving free cash flow in 2020 compared to 2019? Check. Monthly active user growth rising nicely? Yes. Active buyers up compared to the year-ago period? Yep. Looking at the company’s adjusted profitability is not encouraging, but a 6% adjusted EBITDA margin won’t send investors packing for the hills if they buy Wish’s growth story.
COVID-19 was not simply a boost to Wish, its S-1 makes clear. The pandemic shut some supply hubs, slowed supply chains and lengthened delivery times. But the company also said that it “benefited from greater mobile usage and less competition from physical retail as a result of shelter-in-place mandates” and “benefited from increased user spending due to U.S. government stimulus programs.” Noting that stimulus is fading, Wish warns investors in the document that it “cannot assure you that increased levels of mobile commerce will continue when COVID-19 has subsided or otherwise, or that the U.S. government will offer additional stimulus programs.”
Wish is wealthy, with around $1.1 billion in cash, cash equivalents and marketable securities. It also has no long-term debts that could cause concern.
Finally, who is going to win in the deal? Most notably, Peter Szulczewski, Wish’s founder and CEO. He controls 65.5% of the company’s Class B shares and around 58% of its total voting power, pre-IPO. Major investors include DST Global, Formation8, Founder Fund, GGV Capital and Republic Technologies.
Quite a lot of venture hopes and returns are riding on this IPO, then. More soon.