Hey, cut me some slack. I would have written about ContextLogic’s (NASDAQ:WISH) Chief Financial Officer (CFO) resigning from his position in late June, but I only got the opportunity to write about WISH stock in the dog days of July.
Rajat Bahri’s last day as CFO was July 23.
In his place, the company appointed Brett Just and Jennifer Oliver as interim Co-CFOs.
CFOs come and go. This move suggests there’s a problem with ContextLogic’s business model.
Here are three reasons why.
1. The CFO Realized His WISH Stock Options Were Worthless
ContextLogic’s Q1 2021 shareholder letter is a thing of beauty. It’s eight pages of wonderful prose from Chief Executive Officer and founder Piotr Szulczewski. The CFOs name was dutifully listed directly below Szulczewski’s.
How is it that someone could put their name to the following quote and then resign six weeks later?
“I am so proud of the work our employees are doing at Wish to reimagine the future of ecommerce,” he wrote on page 5 of the Shareholder Letter. “To better address the large opportunities , we are aggressively adding to Wish’s headcount, including key leadership roles.”
Blah. Blah. Blah.
Bahri was CFO for four and a half years. ContextLogic was founded in June 2010. He joined the company in December 2016.
Before the e-commerce company, Bahri was CFO of Jasper Technologies. In addition, he spent 18 years at Kraft in finance-related roles.
He owned more than 1.3 million shares of WISH stock. Even at their deflated value (they are down nearly 50% year-to-date) he owns stock worth more than $12 million. Apparently, Bhari has joined another firm.
Who leaves a good situation when millions are at stake?
Maybe the firm he’s going to made it worth his while to negate the future WISH stock options and grants he’ll forfeit. However, with a few exceptions, CFOs are generally interchangeable.
The alternative is that Bahri realized that ContextLogic was an e-commerce version of the Titanic. As a result, his shares would ultimately be worthless.
If you look at page 15 of its most recent proxy, Bhari had 497,149 Class B common shares that would vest on June 15.
Bhari gave his resignation shortly thereafter. As I write this, those shares are as good as sold. A bird in the hand is worth two in the bush.
2. The New Executive Chairman Isn’t the Answer
Another possibility is that Jacquie Reses, the company’s new Executive Chairman didn’t see eye to eye with Bahri. Reses was hired in May and has been a director since December 2020.
After all, she comes from a long list of jobs at successful and not-so-successful tech companies such as Square (NYSE:SQ) and Yahoo.
Not to mention she’s on the board of Bill Ackman’s special purpose acquisition company (SPAC). So she’s what you might call a player.
Given her private equity experience at Apax Partners, it wouldn’t surprise me if the board brought her on board to fatten up ContextLogic’s valuation.
She’s going to have to work hard. WISH is leaking like a sieve.
For her troubles, she gets $35,000 a year in salary — you can be sure that’s not full-time work — plus 828,500 restricted stock units (RSUs) and 828,500 performance-based restricted stock units (PRSUs).
Approximately 33% of the RSUs vest on May 15, 2022. The remaining 555,095 shares vest in eight equal amounts from Aug. 15, 2022, through May 15, 2024.
As for the PRSU’s, they vest on May 15, 2023. So to get the maximum 200% — double the 828,500 — WISH stock will have to increase by at least 298% from May 11, 2021, through May 15, 2023.
On May 11, shares closed at $11.78. So to get the full 200%, WISH will have to hit $35.10 by May 15, 2023. They came fairly close in January.
Assuming WISH hits $35.10 on May 15, 2023, Reses’ RSUs and PRSUs at that point would be worth $77.5 million [33% of 828,500 (RSUs) + 4*69,387 (4 RSU vesting periods) + 200% of 828,500 (PRSUs)].
She’s got a million reasons to make this work, but in my opinion, she’s not the answer.
3. Losses Aplenty
As the company’s shareholder letter stated, ContextLogic lost $128 million in the first quarter ($79 million EBITDA loss) on $772 million. The revenue in Q1 2021 was 75% higher than a year earlier.
In the second quarter, it expects year-over-year growth of 2% ($715 million) to 4% ($730 million).
My InvestorPlace colleague Chris Lau suggested on July 15 that the company’s outlook for an adjusted EBITDA loss of $55-60 million was shocking. I would argue that the lack of growth is far more troubling.
Without a retail expert on its board, I remain unconvinced about ContextLogic’s ability to scale its business to the point where it can profitably take on Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA), MercadoLibre (NASDAQ:MELI), and all the other e-commerce powerhouses.
Analysts give it a target price of $17.10, but, as my colleague suggests, WISH might not even be a buy at $8.
The former CFO’s departure speaks volumes about the stock’s true value. Buy at your own peril.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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