Chit Chat Stocks - Wish (WISH) | Deep Dive

Episode Date: May 23, 2021

Wish is officially known as ContextLogic Inc. but is more commonly referred to as Wish. The company operates a mobile e-commerce platform across the globe. The Wish platform connects merchants with consumers at competitively low prices. Listen closely as Brad, Brett, and Ryan dive into what the company does and how they can grow from here. As always enjoy the show! Subscribe to Potential Multibaggers: https://seekingalpha.com/checkout?service_id=mp_1308 Follow Brad and check out his work on Twitter: https://twitter.com/StockMarketNerd?s=20 Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (2:34) Industry | (6:41) Management & Ownership | (7:36) Valuation | (9:17) Earnings | (11:36) Balance Sheet | (15:11) Our Analysis | (17:15) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. All right, everyone, welcome in. This is the Sunday Deep Dive with Brad Freeman. Brad, how are you doing today? We're in a closet. I think we're seeing you over on your video

Zoom or in a different location. How is that? How are you doing today? I am in my work studio that doubles as a bedroom. So things are going well for me. I'm living in very glamorous life. And I am, I'm happy to be here. All right. And then we got Ryan here as always too. And we're going to be talking about wish, which is called context logic, but we're going to call it wish because that's the, uh, really what the company is wish.com wish the mobile app. Uh, and Ryan will introduce it, but first we have to talk about potential multi-baggers. Ryan, do you want to introduce the service from our friend Chris at growth to value? Yeah, he is our friend. And basically, he's picking stocks that he thinks can 10x in 10 years. And he has one of the best track records out there, especially from the investors we know. I think what, C Limited, what was the cost basis on that?

$54 a share. And there's plenty others. You know, the reputation speaks for itself. He's crushed it. But Seeking Alpha Service, I'm sure you can find the link. It's called Potential Multi-Beggars. They run several portfolios there. Chris helps you track what he's adding, kind of what he's seeing out there. It's continuous updates. And the portfolios are all tracked for accountability.

It's very important for them. So you can see how the live portfolios are doing. You can see how every pick does in real time. Yeah, it's not like you're just reading his stuff either. You can kind of collaborate with him. Say, you know, what was your thinking behind this? Even though he does detailed write-ups and, you know, it's communicative. Yeah. And if this sounds like something that you would want to do or be a part of, you can go to seeking alpha and look for from growth to value or potential multi beggars. You'll find it there. You can Google it or you can go to at from value on Twitter that has all the links as well. All right, Ryan, do you want to introduce wish.com?

I don't know if it's a .com because it's a mobile native e-commerce marketplace and it's really for cost conscious consumers. And when I say that, I mean, these people are looking, it's like dirt cheap prices. Basically, I mean, stupidly cheap. It's like, it's similar to Amazon, but just really, really cheap stuff. Kind of like a garage sale on those prices. Yeah. And the supply is sourced from merchants. So it doesn't actually come from Wish, but Wish is basically operating as the platform in the middle.

And when I say it's stupid stuff or say stupid cheap, it's like I saw today a toothpick crossbow for $1.67. So that's kind of some of the stuff that's on there. There's more real stuff, but then there's items like that. And it takes a while to ship. So I think the average time to delivery was 22 days this quarter. I might be getting that wrong. It was actually at 62 days at the height of the pandemic, but that was because of shipping issues. and a lot of the items are sourced in China

because that's where they get basically the most competitive prices or cheapest prices. They don't give an exact number on it, but they said the majority. And that's also why the time to deliver is so long because they have to ship that stuff. And then Wish generates revenue by taking, I believe it's still the same,

a 15% cut of each sale that's on their core marketplace. So it's not merchant fees, but then they also have merchant services. So there's stuff like product boost, which allows merchants to promote their different items. And then they also have logistics services that merchants can pay for. Do you know if that's on a,

like, do they pay a fee for that? Or is that like a part of this? Yeah, it's sort of like a fulfillment by Wish. It's kind of like fulfilling by Amazon. I think you subscribed to it. I didn't see any of the pricing rates on there. I assume you level up. Like there might be tranches that you go through.

Like, all right, if you do a thousand ships a month, it might be this. And then if you do a hundred thousand, it could be a lot more. but that that's the fastest growing segment yeah yeah and the company's actually headquartered in san francisco but the majority of sales come from europe uh it was like 46 europe 40 north america so pretty healthy mix yeah and then a little bit about the history fascinating history actually so peter uh shulsuski shul shulsweki shuleski uh anyway i'm sorry i'm forgetting that name wrong

he's a polish immigrant to canada uh i think that was when he was in his teens i believe but he attended Waterloo University. And before he graduated, he interned at Google. He ended up moving down to Silicon Valley, I think in 2003, 2004, and starting at Google was an early employee there. Great time to be there. And he eventually moved to Google's South Korean office where he learned that people sort of, in America, it feels like Google was really trying to have this minimalist page. And in South Korea, people don't mind like crowded search pages with lots of information. And so that's kind of played into Wish's design today. And he actually left in 2009 and spent two years on his own writing code and building what was now called or what was

called context logic. And it was designed to predict interest based on consumers' habits and clicks. Apparently the tech behind it, apparently Peter's a really good coder, I guess. The tech was supposed to be really solid. They got early, it was supposed to be a competitor, an advertising competitor to Google. They got a 1.7 million in seed money. But, and I think the Yahoo founder was one, he's like, we don't know what it's going to do. We just know the tech's really good or the Yahoo co-founder. And they even got an acquisition offer from Facebook at one point, but Peter said, no, I want to do this myself. So he called up an old college friend who became his co-founder and they built Wish, which was the marketplace. And then they went public in December of 2020,

and they reached north of a $15 billion valuation following the IPO. And they got funding, a private funding round at like an $11.2 billion valuation just before going public. Now it sits at what? $5 billion market cap? Yeah, I'll get into the numbers.

Yeah, in just a bit, but yeah. Yeah, so fascinating history, but I'll let Brett dig into the industry. Yeah, quick one here, e-commerce. Everyone knows about it. E-commerce industry is about $4 trillion worldwide. We all know it's huge. we all know it's growing fast and got a giant boost due to the pandemic. It's projected to

grow steadily over the next few years. I think from what I was looking at on Statista, which isn't the best source, but it's kind of a grouping of sources. It's projected to get to $6 billion by 2025. But remember, those are only projections. And there are a lot of competitors because the industry is so large. So that could include even companies like Amazon, Walmart, or Target. However, the true competitors and the ones that operate in the closest business model to wish would be someone like eBay, Etsy, Mercari, Poshmark, and then probably increasingly Instagram and Pinterest for the type of stuff, you know, on there as well. Facebook Marketplace. I just thought of that one as well. But yeah, pretty simple industry. I'll kick it over to Brad to talk about more about the management and the ownership. Yeah. So Peter Selesky, I'm going to go with that pronunciation. And again, sorry if we're butchering it, but he's 39 years old. Ryan went into his background a little bit, but I'll hit on a little more personal note.

So he talked about in the shareholder letter being this kid from Soviet-controlled Poland and not having access to basic goods and services and him dreaming of when his uncle would bring him Legos or being able to go to a mall in Western Europe or something like that. So that was his driving motivation behind creating Wish. and I think pairing that with his background at Google and his pretty impressive track record there, I think is a pretty nice complimentary resume for this type of endeavor. In terms of more executive experience, the CFO comes from Jasper Technology. He was also the CFO of Craft Canada. The general counsel is the former general counsel at Zynga. From an ownership perspective, owners and directors we still don't have after the offering data we have before the offering data but it's usually pretty darn similar um officers and directors own 70 70 of the voting power before

the offer um peter himself has 57 of that voting power the largest six funds own about 25 of the voting power so most of the companies float is spoken for that's before the offering again so So I'm sure with the billion, roughly, dollars they raised, that went down. But that just gives you an idea of the baseline of what the ownership looks like. Right. And they have a dual class share structure, right? Yeah. All right.

I'll hit valuation quick. Market cap from when I was looking is about $5.75 billion, ticker WISH. Enterprise value is a lot less at about $4 billion. However, I think you can make the argument that you really, as an investor, don't have a claim on that cash. It's a lot different than the company that is generating cash each year because the way their financials are looking right now, and Ryan will get into it later, I'm sure we're going to discuss it on the second half too, there's going to be a burn for a long time here. So all that cash might be burned. So it's a tough one, whether you want to use enterprise value or market cap, but price to sales is about two and price to gross profit is 3.3.

So fairly cheap on those two metrics. unprofitable. So it's kind of hard to look at them at any PE ratio or a 20 to 12 month operating cashflow or something like that. But they also have, and this should be noted because it's very important, about 100 million options in RSUs, which would be restricted stock units. They act kind of like stock options. They are ready, I guess, to dilute the share count over the next few years once they get exercised. And to compare that to the current count, the current share count is about 620 million. So fairly strong shared illusion coming down the line. Ryan, do you want to hit earnings? Yeah, Brad, do you have something first? Yeah, sorry. So just a question for me,

would you, is that essentially just a shelf offering that they're waiting to file when the time's right? I think, no, I'm not exactly sure. I bet it's from just the plans they have with employees. I think they had a founder, CEO, one of those level things that are popular now where like there's 10 different levels of whatever metrics they want to use um i could be getting that wrong because i was looking at another company that had that but yeah all i looked at was the aggregate share stock options and rsu is outstanding and it kind of it kind of jumped out with wish but i don't i don't have the details right now yeah i missed that um thank you for bringing that up i think i missed that yes yeah yeah you gotta get to those notes in the uh

i think it was in the 10k those are in or the 10q yeah it's my favorite part yeah i mean although I would, it seems weird for someone with, I mean, Peter's got 57% of the voting power. I don't think you've got to power him up with vesting tranches to get him to own a lot of the company. He's not incentivized to do that. He already owns it. Yeah. But I'll dig into the earnings. So their first quarter revenue was up 75% year over year core marketplace revenue made up the most of it. And it grew at about 40% year over year, but logistics revenue grew by over 300%. So a lot of strength there. And then they are losing money as Brett mentioned, even though they are really catering towards cost-conscious customers,

they don't seem to be too cost-conscious themselves. Their net margin was negative 17% for the first quarter. Looks worse last year because there was a lot of IPO related stock-based compensation. They had negative 354 million in free cashflow, but a lot of that was due to the working capital adjustments. There was a lot of accounts payable. I believe there's a huge increase due to some of the shipping stuff with merchants because a lot of the stuff couldn't get shipped. Like I said, there was a 62-day delay during the height of the pandemic. And so they're coming off that. So cash flow is going to look a little wonky. And then adjusted EBITDA margin was negative 10%. It was negative 30%. I believe a few years back, according to

their conference call and then sales and marketing spend was 108% of gross profit. Um, so they are just, they're pouring money into sales and marketing. I think they had a $30 million to sponsor the Lakers. Um, they are sponsored the Jersey sponsor, the Lakers. Yeah. Yeah. So they're one of the largest advertisers on Facebook too. Yeah. Yeah. What do you guys, what do you think lakers sponsorship good or bad well not in the stadium shout out sofi yeah i'd say the history of uh of stadium sponsorships the tracker is not great but i hope sofi uh doesn't fall on some of those well thank you thank you i appreciate that apparently the lakers are pretty big in china which is a lot of where a lot of merchants are um so i guess that was they mentioned

that in uh the reasoning behind it but i'll get into some of the user numbers total monthly active users declined 7% year over year to 101 million. And a lot of that was attributable to decreased advertising spend in emerging markets. And they also de-emphasized the really low priced items, which is they get more sales from the low priced items, especially from those emerging market areas, but the economics are terrible on them, or at least worse. So they said, once they kind of have the better logistics in place in those emerging markets, they'll start to ramp up marketing there again. And then revenue per active customer grew 76% year over year. They're trying to target higher lifetime value customers, or at least customers with better economics. And then the

percentage of orders above $20 increased 54% year over year. So they're really trying to improve the economics and I guess get higher ticket items. Pay close attention to the wording though. It says the percentage of orders above $20 increased 54%, not the volume. So as a percentage of the whole, so it could have gone from like 2% to 3%. I don't think it did, but it just felt like a little bit of tricky wording there. And then active buyers decreased 3% to 61 million. That kind of falls in line with the total MAUs. But in general, it was a much larger company than I thought. I believe it's the third largest e-commerce marketplace in North America. So it's weird to think that it's trading at a $5 billion market cap considering that, but they are losing a lot of money as I

mentioned before. Yeah. Yeah. It totally makes sense. All right, Brad, do you want to talk balance sheet? Sure. So the company that this surprised me a little bit raised a little over a billion dollars in their IPO. So kind of just messing with what Ryan just said, it's a, it's a big company. And that was, that was a big offering. They have 1.62 billion total now in cash and equivalents. It doesn't really neatly break down things into long-term debt. So we will go kind of through item or liability items. So current liabilities are about a billion in total liabilities. That's made up of payables, refunds, which they have to do a lot of because the quality's not super great, but we'll touch on that later. And then every other accrued expense

that they have. They only have $34 million in non-current liabilities. That's all lease agreements. And they have a brand new $280 million credit revolver. Well, not brand new, but as of November 2020, and they're paying LIBOR plus 1.5% on that. So pretty darn affordable access to credit. Interest expense last quarter was $0. It was a couple million for the whole year of 2020. But as we talked about, they're burning or they burned through, what was it, $354 million in free cash flow, which I know some of that was not non-cash items, but transitory items that aren't going to repeat. But even with $1.6 billion in total liquidity, that doesn't last. I mean, they have a couple of years before they have to raise money with these current unit

economics, but hopefully margins will quickly move in the right direction before then. Yeah, you'd hope that they won't have to raise again. It'll take a few years of this burn rate. Also, Peter has said this before in interviews, and I know a lot of – I know Adam Newman said it, but he says we could be profitable if we wanted to right now. But we are spending a lot on marketing because we want to raise awareness and we want to grow. And when they have the burn rate to do it, I guess it kind of makes sense. Yeah. Yeah, it looks like they're spending a lot to build out logistics that has pretty bad margins right now.

Hopefully that'll improve. But I guess that's something good to talk about in the second half. But let's take a break and then we'll get back to the show. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real time alerts. Oh, like this one. So you don't have to worry about malware. Or when your kid downloads a song from a shady link.

and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply okay welcome back next up we have anecdotal evidence and customer stories i think we all probably download the app to check it out on this one i haven't purchased anything i haven't purchased anything either but brad what are your thoughts? I think it says here, you purchased something. So I was a pretty, uh, pretty loyal user in undergrad. Um, when I had no money and I still have very little money, but I, when I had less money then, um, and quality wasn't, wasn't super important to me and price was, was by far

the most limiting factor. Um, so it definitely served a purpose for me. I bought some clothes, I bought a watch, I bought, I think a phone case and it was all kind of, um, it wasn't the greatest quality, but it served a purpose and it was cheaper than anything else I could find. So what were your thoughts on the, did they do like the promotion things like throwing out 50% on 50% off, like throwing that out of your face on that? Yeah. And then once, yeah, they did. And then once I downloaded wish Instagram and Facebook was just an endless list of, of, of wish sponsored ads. So, so, um, so they're definitely, they're definitely hitting the marketing hard, which, which again, mesh as well with um ryan talking about the ceo saying they could be profitable right now if they

want it to be uh but yeah yeah it says they have like eight million instagram followers which you know that's there's some potential there of instagram marketplace or whatever they call it takes off to use that as a place to sell as well those famous tiktokers just started selling their i know we saw they sent out a letter it was in the letter right yeah but there are like there are some famous tiktokers and they recently started selling their energy drinks on wish or whatever and promoting it through there i mean they seem uh attuned to what uh is sort of the way to reach consumers and that really is their target demographic is the people that are buying super cheap stuff and kind of the kids on tiktok yeah you want to hear yours ryan uh yeah i looked

at some stuff on the app i downloaded it um one of the things i saw was beats studios for 24 dollars saw the same thing retails like 300 bucks yeah those aren't real i mean that's kind of the trick here is they're mostly counterfeit stuff so it's like just willingly accepted counterfeit stuff i don't like everyone's on the same page like this is just yeah i mean whatever i guess i i it's just i mean the quality i mean the quality might be uh you're taking a risk on that quality of the the audio there but we'll we'll see yeah there were some things that had like verifications like a check mark so kind of like maybe like that's the real product i guess um and then there's also i mean you pay a lot of attention to the reviews um and sort of the

pictures and the comments and stuff like that yeah um yeah i guess i downloaded the app too it felt gimmicky i guess it's kind of what you guys are saying too you know it's like a feature though not a bug yeah well i don't know it's a bug for me um you're a minimalist i i guess i don't know i don't like buying stuff so i don't think i'm the target market here but i do worry about churn uh just looking at the app it seems very easy to turn off um yeah i think that's just kind of the big concern anecdotally from what from what i thought uh next up competitive advantages brad what are your thoughts on wish do they have any competitive advantages uh yeah i think so i'm looking at ryan's and mine looks pretty similar to his so i'm gonna i'm gonna pick a different one

um but i think uh the cost and their ability to to source all this merchandise for very low cost I know there's Mercari and a couple others that are doing similar things, but there's not a lot of others that are doing similar things. Sourcing new merchandise for profitably, according to the CEO, as cheaply as they can do it, I think does serve as a competitive advantage because there are a lot of people where price is the primary motivation. It still is for me. Hopefully that won't be true at some point in my life. But yeah, they are serving a large cohort of people who this really is relevant for, I think. Yeah, I agree. That makes sense. And my competitive advantage then would be scale because they've got more than 100 million monthly active users and they've got more than 60 million active buyers.

Trillion, 12-month. Trillion, 12-month active buyers. And this is a platform where sales are driven by data, reviews, ratings, comments, pictures, stuff like that. You're going to vet any product through that because there are so many counterfeits and stuff like that. And so the more users that are on there, the more purchases they have, the better the product gets. And so I guess that's sort of a scale advantage for them. Yeah. And it's not apples to apples for economic markets and culturally, but a lot of people were comparing it when I was looking up like what's Wish. Is there any companies like Wish? People are comparing it to Pinduoduo, which has done phenomenally well in China. I'm not sure they're exactly the same, but I guess that's never the thing like, oh, Pinduoduo of US, this is going to be $100 billion company too. you don't want to do that but there's a good example of that of that type of product working

out in china and that's like another market where there was already established players like an ebay through alibaba kind of and they got a lot of other stuff but then there's also the amazon with jd.com so there is an example of all these marketplaces winning within china and maybe wish can bring that over here but uh i'll talk my competitive advantages i kind of lock in with logistics and advertisements for the merchants so it can keep people merchants dependent on the wish platform if they're providing the logistics if you are advertising with them and that's bringing in users to buy your stuff i think i don't know if that's a competitive advantage i mean it could be in the future i don't know they've got what 550 000 merchants uh they have

a million they have over a million yeah the reliability and how big the merchants are each merchant is i'm unsure of but they have a million according to some article from 2018 so yeah probably even more a lot more now yeah huh i must read the wrong number but yeah i think you're probably you might have been looking at non-chinese or something you know because they they bragged it out yeah they've given out some numbers but oh all right uh future growth opportunities brad you want to go first uh yeah leaning into those toothpick crossbows that we were talking about No, I'm just kidding. So from the S1, but I'm going to take a quote from the S1 for my future growth opportunity. So yeah, and I'll just say, we continue to evaluate our options for seeking

additional licenses in several other jurisdictions to optimize our payment solutions and support the future growth of our business. So it sounds like they're definitely dabbling in fintech land. And I think that could provide a lot of upside in terms of not outsourcing some of these payment capabilities to third parties and just boosting their their bottom line further yeah i mean every e-commerce yeah every e-commerce company seems to have done this where they just make the native payment solution and people like oh whatever someone's making etsy pay payments or whatever they call it and you kind of roll your eyes another one simple thing yeah it's just everyone seems to be doing it but they do it for a reason because it helps with your uh your margins

overall so ryan ryan what's your future growth opportunity uh i have two uh first i was gonna to say quality assurance improvements but it sounds like people uh don't care uh it's well it's i think some i don't know yeah it's kind of a give and take it's weird i'm not exactly sure if they care so i think like the verification thing was a good idea i think maybe an ar element they might have mentioned this actually like an ar element where you can kind of see the product in you know uh and apply it to reality um but then also wish local they have 50 more than 50,000 partner pickup stores. This really speeds up delivery time. People can go pick it up from that store. It doesn't require any spending on real estate and it just improves the overall

experience. So I think just get as many local partner stores as you can would be good. Yeah. It was kind of a quick hack that they made because they're not going to be able to spend the billions of dollars to, I don't know, like Amazon does to really get all this stuff going for two day shipping or whatever people are accustomed to these days. So kind of using them, these brick mortar stores could really help. But I'll talk about my future growth opportunity. This is the fastest growing segment. Like Ryan's saying, it's logistics services. It's growing at really low margins. You can see their total gross margins decreasing pretty fast as logistics revenue ramps up. But I mean, it's growing so quickly that it is gross profit accretive. I think they

were growing 56% last quarter. So it's not like they're growing with zero margins. And they also talk about this logistics as a service segment. I'm not sure exactly what it is. And again, that's something you kind of roll your eyes over because they're just trying to toss that in to hype up shareholders a bit, I think. But something to watch out for. They really seem to be leaning into the logistics stuff. And it's just outsourcing fulfillment to Wish. So it's kind of like fulfillment by Amazon, if you're aware of that. However, Wish does not have its own logistics network like Amazon does. So, the margins, it's kind of tough to see how the margins are ever going to get really strong, but we'll see how it works over time. Hopefully, they can get some

operating leverage if they can scale this business. All right. Highlights, lowlights, Brad? Yeah. So, I'm going back to the personal experience that I've had with the company. The highlight is the value proposition that they're delivering for people who have the desire to buy things like Legos, as the CEO Peter was talking about in the shareholder letter and can't really afford to pay for the highest quality. So I think, yes, the quality of their stuff is not the greatest, but it does serve a very interesting niche, I think. And that kind of feeds into my low light, which is as soon as these consumers get any kind of disposable income and start to get comfortable with their financial situation. I think user churn will be a real issue because

then quality becomes more important and price becomes a little less important. So I'm not sure how forecastable lifetime value of a consumer can be. I'm not sure how reliable retention is going to be. And I think that means they're going to have to just continue sinking their teeth into marketing to drive traffic. Yeah. I think the goal, yeah, the goal is that, I think you're right that could be a low light they're gonna have to marketing spend might be perpetual um but hopefully the goal is that people get some sort of income over their life that they move away from the platform but this really could capture that more cost-conscious consumer uh and i think there will always be a market there uh people like going to garage sales so yeah they

like going i mean you're not going to go there every day but you sometimes you like perusing a garage sale if you're trying to maybe you're trying to just find a big deal on something you're not worried about the quality as much yeah my uh my highlight would be that jackie reese's um joined as the executive chair recently um and if you're thinking like who cares like she was on the conference call she's like a part of the company she's like integral to it it's not just like some passive board member um and i she's one of the executives that i think i like best pretty much everything she's touched has turned to gold. She's, uh, she was the lead at square capital chairman of square financial services left. Uh, she was even the, on the board of

directors at Alibaba prior to that. She's a chairman of the federal reserve bank of San Francisco. Um, and she didn't need to come to wish, like, I don't think she was like just looking for a job. Um, she, I think she finds companies that she likes that are young and helps them grow. Uh, and she's gotten good at that. And she was able to do that with square. Um, and she's now done it or looking to do it with wish. Um, and I think it could definitely be a profitable business if they peel back some of that sales and marketing, uh, definitely could, um, not going to be, there's not going to be any huge margins on it, but at 10% margins that the price doesn't seem too crazy. My low lights would be the deals on the website look too good to be true. Like,

I think there's a lot of fraudulent stuff. And then there's also a ton of macro risk with economic tensions between China and the US because they source so much of their supply from there. So yeah, they seem to be trying to grow out of just China, but that still seems like a low light right now. It's hard. I mean, that makes,

that lowers the customer value prop, doesn't it? If you can't source cheaper supply. Yeah, that's true. And it really, I mean, it hurts that delivery time. I mean, 22 days delivery is not what people are looking for anymore. I mean, they saw four, I think it was 414% year-over-year growth in Wish Express, which is less than five day delivery. Yeah, improving that. I mean, if they continue to improve that, that's better.

Better than not. And I think a lot of that has to do with having Wish local stores, I imagine. Yeah, that's probably true. All right, I'll hit mine. highlights uh the snm spend is improving but i'll talk about that in my low lights too uh it's all you know it's high um strong industry tailwind uh we have i guess you guys didn't mention that there's room for a lot of winners it just because amazon's in there just because ebay and walmart and they're on target doesn't mean that there can't be a small company that's doing say whatever

five billion in revenue sometime down the line um i think it is a unique value proposition that is different than a lot of the other Western retailers like Amazon. They're kind of saying like, yeah, this stuff could be junk, but it's really like a giant garage sale, which has its own, it has its own value proposition. You know, you're not going like, okay, you go and wish theoretically, I guess is kind of what their value proposition is supposed to be. So you go on there to browse and find things you didn't know you really wanted. It's kind of just a splurge purchase for 10 bucks, kind of like you do at a garage sale. But Amazon, you go there with the intent, you know, searching for something, you already know what it is, you're hopefully on and

off in three minutes. So totally different. Lowlights is the last 12 month buyers stagnating since 2018. They had, I think, 64 million last 12 month buyers in 2018. And, you know, now Ryan gave that number at 61. I think that's just a giant red flag. When you couple that with the high S and M spend. I mean, if you're spending 60% of your revenue on sales and marketing or 108% of your gross profit on sales and marketing, and you're not growing customers, but they're growing. Sorry. The customers are down because of the emerging market stuff, but the value, the 75% year over year revenue growth from active customers, that's where the marketing spend is going. If you can generate that revenue from your existing customers, does it really matter?

I would rather them peel it back in the emerging markets. Yeah, I mean, all I'm looking for is customer, is S&M spend has percentage of revenue to come down and customers to grow. That's all I'm looking for. Because what I'm seeing is if your customer account is stagnating and sales and marketing spend is this high,

it tells me that you're not, I mean, that feels unsustainable to me because maybe they can peel back S&M spend and customers won't tank. But if you're advertising this much and customers aren't growing, um i mean that's just that's tough for me uh and then that feels gimmicky but maybe that's part of the deal um you know it threw me four fifty percent off codes before i was gonna buy an item

i just think that's a lot maybe that's fine but i don't know for me it kind of threw me off and i'm never gonna i don't think i'm ever gonna open it again um yeah you might yeah you might not be the target customer yeah and if i'm not target customer that's fine doesn't mean yeah doesn't made a wish can't succeed without me yeah all right more or less interested brad uh i'm gonna go more interested i i do need to see a couple quarters of continued of continued growth and continued movement towards profitability and and i would like to see that buyer growth return um what when we and i'm talking about when that happening when we get beyond covet 19 um this probably didn't get as large of a boost as some of the other uh digitally native

marketplaces but i mean when garage sales come back when thrift shopping shopping comes back there's going to be more competition and i'd like to see how they how they handle that that that return of competition so more interested but going to take a wait and see approach yeah ryan more interested uh i think peter is brilliant he's well respected uh especially in kind of the tech community. I also think Jackie just deciding to come on is sort of a vote of confidence, especially for shareholders. If they're mildly successful, it's a cheap multiple for sure. And EBITDA margins have improved constantly and they're expected to improve sequentially next quarter. I think there's a world in where they're profitable.

I'm going to go more interested for now. Obviously there are some low lights, I guess you could say the sales and marketing spend is concerning and the fraudulent stuff, I guess is more of a feature than a bug, but. Yeah. I wouldn't call it, I wouldn't call it fraudulent. Maybe counterfeit is technically fraudulent, but it's kind of, it's on, you know, it's a lot of people, people were complaining about it online. Like it's counter, it's all counterfeit.

But it's mutually agreed upon counterfeit items. I guess, I guess. yeah but the thing is like when you do that you're giving up nike's not going on here i mean nike didn't even partner with amazon they're not going on here or at least they're not going to be legit on here um yeah no so well there might be nike products there's nike logos but no nike products yeah they're probably very upset um yeah i'm more interested and i'd say just like you guys I mean, it's, it's almost strictly because of the valuation. Um, yeah, I mean, three times gross profit, very cheap for what they're putting up on their growth rate. Margins are really tanking on

the gross margin side and there's going to be the shared dilution coming down the line. So you kind of got to factor that into play. And there are a ton of low whites with the business model, but that's, you know, you're not getting the number one horse, but you're getting some pretty good odds. So that's something to consider. Definitely going on that watch list, Ryan. Yeah. I'd also add the customer spend. So the customers that are staying are spending 75% more. That's good. And the orders, whatever it was, percentage of orders that are above $20 up 54%. You like to see that because the economics are better that way too. yeah yes yes for sure you i think there could be some operating leverage as they scale

but without owning the network without owning the the logistics stuff not as much maybe not i don't know there's a lot of there's a lot of low lights here but if they can execute and turn things around i mean the valuation is pretty compelling there could be returns yeah it's i don't know i'm on the fence a lot of things to like not a lot of things not to like um all right let's wrap things up. We have the stock for next week. Brad, what is your choice going to be? Yeah. And I looked through the Chitchat Money Library and I did not see this stock pop up, but if I missed it and it did, then just tell me and I'll pick a new one. But let's do UiPath if we have not done that one yet. We have not. I've heard that one thrown around a lot,

so it should be an exciting one. Software, B2B software? No. Yeah. We'll try to figure out what it does. Yeah. That's a task for next week. They're using a lot of AI machine learning, so it's obviously a buy. Flywheels. There's a lot of flywheels. So many flywheels. All right. That's going to do it for this episode. Thank you all for listening. Remember, we are not financial advisors. So anything we say on the show is not formal advice or recommendation. Ryan and I are general partners at Arch Capital. Arch Capital clients may hold securities discussed in this podcast. Again, thank you all for listening. We'll see you

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