Breakingviews: Wish’s cut-price approach fails to extend to IPO

Wish has high hopes. The fast-growing, low-ticket e-commerce app is not unlike the successful Chinese service Pinduoduo, which combines shopping with elements of social networking and gaming. But Wish’s mooted valuation of up to $14.1 billion in an initial public offering suggests its cheap-and-cheerful approach doesn’t go all the way to the top.

Founded in 2010, Wish connects buyers and sellers for affordable, disposable stuff. Think fake eyelashes and gadgets that make fried eggs in the shape of flowers. Most of the offerings are unbranded, discounted and Chinese. A pair of faux diamond stud earrings, for instance, retail for 76 cents. ContextLogic, as Wish’s listed owner is known, hopes to raise around $1 billion to grow an affordable marketplace for merchants around the world.

Tchotchkes are already big business – Wish competes in the United States with Target, Amazon.com, Dollar General and TJ Maxx, which have been around longer, and have faster shipping times and more favorable return policies. Instead Wish’s hook is to make shopping fun and addictive, an example being the $20,000 sweepstake that greets users on its app. That’s somewhat like Pinduoduo, where shoppers can water virtual mango trees, and corral friends to win group discounts. Both spend loads on sales and marketing: those eat up around 60% of Wish’s revenue, and even more at Pinduoduo.

China is both an inspiration and a risk. Most of Wish’s roughly-100 million monthly active users are in Europe or North America, but most of its products come from the People’s Republic. Any increase in trade frictions between China and its Western counterparts could take a toll. That’s something that doesn’t matter for Pinduoduo, whose valuation has increased from approximately $30 billion to $180 billion since its U.S. stock market debut in 2018.

Even without that risk, the valuation Wish is proposing looks high. The company made revenue of $2.3 billion in the last four quarters. If that keeps growing at the current 24% rate, Wish would make $2.9 billion of revenue over the next year. A $14 billion valuation would be more than Pinduoduo’s average multiple of six times sales over its two years as a listed company. Even Amazon’s three-times-sales multiple would only justify a valuation of $9 billion. There’s no shame in being cheap.

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