ContextLogic Inc. (NASDAQ:WISH) Analysts Just Slashed Next Year's Revenue Estimates By 31%

Market forces rained on the parade of ContextLogic Inc. (NASDAQ:WISH) shareholders today, when the analysts downgraded their forecasts for next year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Surprisingly the share price has been buoyant, rising 17% to US$0.80 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the downgrade, the latest consensus from ContextLogic's five analysts is for revenues of US$852m in 2023, which would reflect a decent 16% improvement in sales compared to the last 12 months. Per-share losses are expected to explode, reaching US$0.75 per share. However, before this estimates update, the consensus had been expecting revenues of US$1.2b and US$0.71 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for ContextLogic

The consensus price target fell 9.9% to US$2.78, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic ContextLogic analyst has a price target of US$5.70 per share, while the most pessimistic values it at US$1.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting ContextLogic's growth to accelerate, with the forecast 12% annualised growth to the end of 2023 ranking favourably alongside historical growth of 0.2% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 12% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that ContextLogic is expected to grow at about the same rate as the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at ContextLogic. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of ContextLogic's future valuation. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of ContextLogic going forwards.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple ContextLogic analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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