CONTEXTLOGIC INC. The following discussion and analysis of our financial condition, results of
operations and cash flows should be read in conjunction with (1) the unaudited
condensed consolidated financial statements and the related notes thereto
included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited
consolidated financial statements and notes thereto and management's discussion
and analysis of financial condition and results of operations for the year ended
Financial Results for the Three Months Ended
• Total revenue was$189 million . • Total cost of revenue and expenses were$251 million , including negative stock-based compensation expense of$2 million . • Loss from operations was$62 million . • Net loss was$60 million . • Adjusted EBITDA was a loss of$40 million or 21% of total revenue. • Cash and cash equivalents and marketable securities were$1.0 billion .
As of
During the first quarter of 2022, we continued to face headwinds of reduced retention and new buyer conversion and a rise in digital advertising costs. In response to rising digital advertising costs, which contributed to lower marketing efficiency, starting in the third quarter of 2021, we decided to significantly reduce our digital advertising expenditures as we focused our resources on other strategic initiatives. As discussed below under "Key Financial and Performance Metrics," our monthly active users ("MAUs") and last twelve months ("LTM") active buyers have been negatively impacted by our decision to significantly reduce our digital advertising expenditures. In response to these headwinds, we commenced a number of initiatives that we believe will improve the user experience and increase retention, including enhancing our product quality and selection, and providing an unmatched fun and entertaining shopping experience. We believe our continued strategy to enhance users' experience in our marketplace and provide a more differentiated and engaging user experience will position us for long-term sustainable growth.
COVID-19
As of the date of filing of this Quarterly Report, the outbreak of COVID-19, including recent and any future variants, has affected businesses worldwide, and continues to impact the major markets in which we operate. Our business, operations and financial condition and results have been and may continue to be impacted by the COVID-19 pandemic and a range of external factors related to the COVID-19 pandemic that are not within our control. The COVID-19 pandemic has resulted in significant governmental measures being implemented at various times and in various geographic areas over the course of the pandemic to control the spread of the virus. Our operations as well as the operations of our third-party merchants have been, and we expect will continue to be, disrupted by varying individual and governmental responses to COVID-19 around the world.
In addition, the COVID-19 pandemic has also disrupted the global supply chain,
which may interfere with the delivery of our merchants' products to our users.
Our MAUs, LTM Active Buyers and revenue may be negatively impacted due to a
combination of reasons including: (i) macroeconomic factors such as worldwide
retail businesses reopening; (ii) the disruption of the global supply chain;
(iii) increased consumer spending on travel and other discretionary items; and,
(iv) the waning impact of
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In
The Restructuring Plan includes i) reducing our headcount by approximately 15%
(or approximately 190 positions), ii) exiting various office leases, and iii)
reducing and realigning vendor expenditures. During the three months ended
Our Financial Model
Our business benefits from powerful network effects, fueled by our data advantage and massive scale. As more users join Wish, attracted by our affordable value proposition and personalized shopping experiences, we are able to increase revenue potential for our merchants. The successes of our merchants attract more merchants and broaden the product selection on Wish's platform, which further improves user experiences. The growth in users and merchants generates more data, which, in turn, refines our algorithm and strengthens our data advantage. By focusing on users and merchants, we align their success with our own.
The economics of the Wish platform rely on cost-effectively adding new users, converting those users into buyers, and improving engagement and monetization of those buyers over time as well as acquiring new merchants and monetizing the end-to-end services that we provide to them.
Key Financial and Performance Metrics
In addition to the measures presented in our condensed consolidated financial
statements, we monitor the following key metrics and other financial information
to measure our performance, identify trends affecting our business, and make
strategic decisions.
Three Months Ended
March 31,
2022 2021
(in millions)
MAU 27 101
LTM Active Buyers 28 61
Adjusted EBITDA $ (40 ) $ (79 )
Adjusted EBITDA Margin (21 )% (10 )%
Free Cash Flow $ (148 ) $ (354 )
Monthly Active Users
We define MAUs as the number of unique users that visited the Wish platform, either on our mobile app, mobile web, or on a desktop, during the month. MAUs for a given reporting period equal the average of the MAUs for that period. An active user is identified by a unique email-address; a single person can have multiple user accounts via multiple email addresses. The change in MAUs in a reported period captures both the inflow of new users as well as the outflow of existing users who did not visit the platform in a given month. We view the number of MAUs as key driver of revenue growth as well as a key indicator of user engagement and brand awareness.
MAUs decreased approximately 73% from the three months ended
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LTM Active Buyers
As of the last date of each reported period, we determine our number of unique LTM active buyers by counting the total number of individual users who have placed at least one order on the Wish platform, either on our mobile app, mobile web, or on a desktop, during the preceding 12 months. We, however, exclude from the computation those buyers whose order is canceled before the item is shipped and the purchase price is refunded. The number of Active Buyers is an indicator of our ability to attract and monetize a large user base to our platform and of our ability to convert visits into purchases. We believe that increasing our Active Buyers will be a significant driver to our future revenue growth.
LTM Active Buyers decreased approximately 54% from the three months ended
A Note About Metrics
The numbers for some of our metrics, including MAUs, are calculated and tracked with internal tools, which are not independently verified by any third party. We use these metrics to assess the growth and health of our overall business. While these numbers are based on what we believe to be reasonable estimates of our user or merchant base for the applicable period of measurement, there are inherent challenges in measurement as the methodologies used require significant judgment and may be susceptible to algorithm or other technical errors. In addition, we regularly review and adjust our processes for calculating metrics to improve their accuracy, and our estimates may change due to improvements or changes in technology or our methodology.
Non-
Adjusted EBITDA and Adjusted EBITDA Margin
We provide Adjusted EBITDA, a non-
We have included Adjusted EBITDA and Adjusted EBITDA Margin in this report because they are key measures used by our management and board of directors to understand and evaluate our operating performance and trends and how we are allocating internal resources, to prepare and approve our annual budget and to develop short- and long-term operating plans. We also believe that the exclusion of certain items in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of non-cash items, certain non-recurring cash items, and certain variable charges.
Adjusted EBITDA has limitations as an analytical measure, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under
• although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized may have to be replaced in the future, and
Adjusted EBITDA does not reflect cash capital expenditure requirements for
such replacements or for new capital expenditure requirements;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
• Adjusted EBITDA does not consider the impact of stock-based compensation and
related payroll taxes;
• Adjusted EBITDA does not reflect tax payments that may represent a reduction
in cash available to us; and
• other companies, including companies in our industry, may calculate Adjusted
EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA and Adjusted
EBITDA Margin alongside other financial performance measures, including various
cash flow metrics, net income (loss) and our other
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The following table reflects the reconciliation of net loss to Adjusted EBITDA
and net loss as a percentage of revenue to Adjusted EBITDA margin for each of
the periods indicated:
Three Months Ended
March 31,
2022 2021
(in millions)
Revenue $ 189 $ 772
Net loss (60 ) (128 )
Net loss as a percentage of revenue (32 )% (17 )%
Excluding:
Interest and other income, net (2 ) - Provision for income taxes - 2 Depreciation and amortization 2 2 Stock-based compensation expense(1) (2 ) 37 Employer payroll taxes related to stock-based compensation expense - 7 Restructuring and other discrete items(2) 22 - Recurring other items - 1 Adjusted EBITDA$ (40 ) $ (79 ) Adjusted EBITDA margin (21 )% (10 )% (1) Total stock-based compensation for the three months endedMarch 31, 2022 decreased by$39 million compared to the three months endedMarch 31, 2021 primarily due to forfeitures originating from the resignation of the Company's former CEO, reductions to the Company's workforce as part of the Company's Restructuring Plan, and modifications to our former Executive Chair's equity awards. (2) Includes restructuring charges consisting of$3 million of employee severance and$4 million in impairment of lease assets and property and equipment as well as a$15 million one-time discretionary cash bonus paid to select employees to help cover their tax obligations triggered by the settlement of their RSUs that vested upon the Company's IPO.
Free Cash Flow
We also provide Free Cash Flow, a non-
Free Cash Flow has limitations as an analytical measure, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under
• it is not a substitute for net cash provided by (used in) operating
activities;
• other companies may calculate Free Cash Flow or similarly titled non-U.S.
GAAP measures differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of free cash flow as a
tool for comparison; and
• the utility of free cash flow is further limited as it does not reflect our
future contractual commitments and does not represent the total increase or
decrease in our cash balance for any given period.
Because of these limitations, you should consider Free Cash Flow alongside other
financial performance measures, such as net cash provided by (used in) operating
activities, net income (loss) and our other
The following table reflects the reconciliation of net cash provided by (used in) operating activities to Free Cash Flow for each of the periods indicated:
Three Months Ended
March 31,
2022 2021
(in millions)
Cash used in operating activities $ (146 ) $ (354 )
Less:
Purchases of property and equipment and
development of internal-use software 2 -
Free Cash Flow $ (148 ) $ (354 )
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Results of Operations
The following tables show our results of operations for the periods presented and express the relationship of certain line items as a percentage of revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Three Months Ended
March 31,
2022 2021
(in millions)
Revenue $ 189 $ 772
Cost of revenue(1) 125 335
Gross profit 64 437
Operating expenses:
Sales and marketing(1) 45 470
Product development(1) 66 51
General and administrative(1) 15 42
Total operating expenses 126 563
Loss from operations (62 ) (126 )
Other income, net
Interest and other income, net 2 -
Loss before provision for income taxes (60 ) (126 )
Provision for income taxes - 2
Net loss $ (60 ) $ (128 )
(1) Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
2022 2021
(in millions)
Cost of revenue $ (1) $ 5
Sales and marketing 1 3
Product development 14 15
General and administrative (16) 14
Total stock-based compensation
The following table presents the components of our condensed consolidated statements of operations as a percentage of revenue:
Three Months Ended
March 31,
2022 2021
Revenue 100 % 100 %
Cost of revenue 66 % 43 %
Gross margin 34 % 57 %
Operating expenses:
Sales and marketing 24 % 61 %
Product development 35 % 7 %
General and administrative 8 % 6 %
Total operating expenses 67 % 74 %
Loss from operations (33 )% (17 )%
Other income, net:
Interest and other income, net 1 % -
Loss before provision for income taxes (32 )% (17 )%
Provision for income taxes - -
Net loss (32 )% (17 )%
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Comparison of Three Months Ended
Revenue
Three Months Ended
March 31, Change
2022 2021 $ %
(in millions)
Core marketplace revenue(1) $ 90 $ 477 $ (387 ) (81 )%
ProductBoost revenue 14 50 (36 ) (72 )%
Marketplace revenue 104 527 (423 ) (80 )%
Logistics revenue 85 245 (160 ) (65 )%
Revenue $ 189 $ 772 $ (583 ) (76 )%
(1) Core marketplace revenue for the three months ended March 31, 2022 and 2021
included approximately $2 million and $9 million net gains, respectively,
from our cash flow hedging program.
Revenue decreased
Marketplace revenue decreased
Logistics revenue decreased
Cost of Revenue and Gross Margin
Three Months Ended
March 31, Change
2022 2021 $ %
(in millions)
Cost of revenue $ 125 $ 335 $ (210 ) (63 )%
Percentage of revenue 66 % 43 %
Gross Margin 34 % 57 %
Cost of revenue decreased
The gross margin decreased to 34% for the three months ended
Sales and Marketing
Three Months Ended
March 31, Change
2022 2021 $ %
(in millions)
Sales and marketing $ 45 $ 470 $ (425 ) (90 )%
Percentage of revenue 24 % 61 %
Sales and marketing expense decreased
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Product Development
Three Months Ended
March 31, Change
2022 2021 $ %
(in millions)
Product development $ 66 $ 51 $ 15 29 %
Percentage of revenue 35 % 7 %
Product development expense increased
General and Administrative
Three Months Ended
March 31, Change
2022 2021 $ %
(in millions)
General and administrative $ 15 $ 42 $ (27 ) (64 )%
Percentage of revenue 8 % 6 %
General and administrative expense decreased
Provision for Income Taxes
Three Months Ended
March 31, Change
2022 2021 $ %
(in millions)
Provision for income taxes $ -
- -
Provision for income taxes decreased
Liquidity and Capital Resources
As of
Our material cash requirements include
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Cash Flows
Three Months Ended
March 31,
2022 2021
(in millions)
Net cash (used in) provided by:
Operating activities $ (146 ) $ (354 )
Investing activities (105 ) 14
Financing activities - (5 )
Our cash flows from operations are largely dependent on the amount of revenue we generate. Net cash used in operating activities in each period presented has been influenced by changes in funds receivable, prepaid expenses, and other current and noncurrent assets, accounts payable, merchants payable, accrued and refund liabilities, lease liabilities, and other current and noncurrent liabilities.
Net cash used in our operating activities for the three months ended
Net cash used in our operating activities for the three months ended
Our primary investing activities have consisted of investing excess cash balances in marketable securities.
Net cash used in investing activities was
Net cash provided by investing activities was
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Cash generated by our financing activities was insignificant for the three
months ended
Net cash used in our financing activities was
Off Balance Sheet Arrangements
For the three months ended
Contingencies
We are involved in claims, lawsuits, government investigations, and proceedings arising from the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. Such legal proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to be incorrect, it could have a material impact on our results of operations, financial position, and cash flows.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in
Our critical accounting policies are as follows:
• Revenue recognition; • Operating lease obligations; • Impairment of long-lived assets, including intangibles and lease assets; • Stock-based compensation; and • Income taxes.
Our critical accounting policies are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain.
There have been no material changes to our critical accounting policies and
estimates as compared to those described in our 2021 Form 10-K, filed with the
Recent Accounting Pronouncements
See Note 1 of Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements.
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