'Long Road Ahead': BofA Downgrades ContextLogic With Revenue Expected To Get Worse Before Better

Shares of ContextLogic Inc WISH traded sharply lower after reporting second-quarter earnings.

The ContextLogic Analyst: Bank of America analyst Michael McGovern downgraded WISH shares from Neutral to Underperform and lowered the price target from $12 to $6.

The Analyst Takeaways: Revenue and EBITDA in the second quarter for ContextLogic were below estimates. Monthly active users also came in 12% below the consensus.

McGovern had downgraded shares to Neutral over monthly user trends previously. The new downgrade comes as a longer road to recovery is seen.

Wish noted a 13% reduction in app installs and 15% reduction in time spent on the app in the second quarter on a year-over-year basis.

“One positive from the quarter was Wish Local, which ticked up to 10% of orders, vs. 7% last quarter and we think niche initiatives like Local can contribute to a recovery,” McGovern wrote in a note.

The analyst sees a large addressable market for ContextLogic and an opportunity in the logistics business to improve shipping times.

Related Link: ContextLogic Plummets On Q2 Earnings, Here’s Why Investors Are Saying ‘Yikes’

What’s Next: ContextLogic management didn't provide revenue guidance for the third quarter. The executives noted that revenue quarter to date revenue was trending down 40% quarter-over-quarter, the analyst notes.

“3Q commentary suggest big year-over-year decline in revenue,” McGovern said.

The analyst notes the company is addressing issues like product quality, latency, selection and time-to-door, which could hinder acquiring new customers: “Top-line trends expected to get worse before they get better.”

McGovern said the company has a “long path ahead” for improvement and customer retention.

Price Action: WISH shares closed down 19% to $7.55.