ContextLogic : Q2 2021 Shareholder Letter

Wish | Q2 2021 Shareholder Letter

Q2 2021 HIGHLIGHTS

Dear Shareholders:

After a strong start to the second quarter of 2021, demand slowed due to a number of headwinds. In response, we are implementing a plan designed to ensure the long-term success of our platform.

Total revenue declined 6 percent year-over-year to $656 million. Strong year-over-year growth from Logistics revenue of 126 percent was offset by a 29 percent year-over-year decline in Marketplace revenue. Overall, we expected user retention to improve now that we have more reliable logistics, but instead retention declined. While we are not satisfied with these results, the second quarter of 2021 was already going to be a challenging year-over-year comparison. During Q2 2020, we benefited from a significant increase in mobile usage and less competition from physical retail as a result of stay-at-home mandates that continued throughout much of the year.

From a macro perspective, as vaccine rates increased, stay-at-home orders began to ease, and economies started to more broadly reopen around the world, daily user activity and active buyers on our platform declined more than we had anticipated, particularly in the U.S., France and Italy - three of our largest markets. In fact, globally we saw a 13 percent reduction in app installs and a 15 percent reduction in average time spent on our platform in Q2 2021 compared to Q1 2021.

At the same time that engagement was declining, the cost of digital advertising on leading ad platforms, which we historically have used to drive demand and conversion on our app, increased more than we expected. In addition, the recent privacy changes for iOS have caused more advertisers to shift spend to Android devices, creating more competition for a limited supply of impressions. Ultimately, this drove up competition for advertising bids, restrained our ability to reach more users and increased advertising costs for Wish since most of our growth marketing has been focused on Android, the preferred device for the majority of our users.

These rising digital advertising costs contributed to lower marketing efficiency. Therefore, during the quarter, Wish's proprietary data science algorithms reduced our digital advertising spend. Our algorithms are designed to optimize for returns on marketing investments and user conversion in real time. Ultimately, our goal is to execute cost-effective and successful digital marketing strategies to acquire new users and re-engage existing users on the Wish platform.

The rise in digital advertising costs, coupled with declining retention and new buyer conversion, requires us to make some major changes in the way we operate. We are implementing the following initiatives that we believe will improve the user experience and increase retention, including:

1. Enhancing product quality and selection. Wish users should always feel satisfied with their purchases. As we improved logistics, product-qualityissues became the number one reason for customer service requests. Under a new quality score system, we are now

Total Revenue

$656M

Core Marketplace Revenue

$378M

ProductBoost Revenue

$50M

Logistics Revenue

$228M

Other Financial Highlights

Net Loss

$(111) Million

Adj. EBITDA

$(67) Million, (10)% Margin

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Wish | Q2 2021 Shareholder Letter

prioritizing products and merchants that receive positive ratings and feedback from our users. We also are adding more globally-recognized brands and items that users know and search for, which we believe will drive more frequent purchases and higher average order values. Since Wish was built as a discovery-based ecommerce shopping experience, we are focusing product selection on categories like apparel, home goods, and gadgets that translate well into an "online treasure hunt" experience. We will leverage our user activity data to strategically select attractively priced, quality products that we believe will delight our users.

1. Providing an unmatched fun and entertaining shopping
   experience. Wish users should always experience a fresh feed that elicits a joyful feeling, as if they have entered a store that prominent- ly displays only products that pique their interests. To meet those expectations, we are investing further in our platform and data-sci- ence capabilities to develop a more engaging, personalized, and discovery-based online shopping experience for our users. We are leaning into social commerce and entertaining features, such as video reviews and live streaming shopping events with the goal of engag- ing users and increasing time spent on the Wish app. Over time, we expect these innovations to drive new buyer conversion and existing buyer retention, and to encourage more frequent usage.
2. Improving the performance of the app. Since Wish was built on a culture of innovation and experimentation, there have been a high number of ongoing platform tests designed to advance innova- tion. However, the volume of those tests resulted in a slowdown, or latency, of the app's speed. The slower platform performance impact- ed the user experience, particularly for our existing users. We have since conducted a thorough review and cleanup of all open tests and this has already resulted in significant latency improvement. Going forward, we will strive to more effectively balance platform testing to advance innovation with the need to maintain optimal platform perfor- mance for our users.

We believe these actions to enhance the user experience and engagement will position Wish for long-term sustainable growth. To execute on these initiatives, we are building out our leadership team with experienced industry talent, including two former Google executives - Farhang Kassaei, who joined as our Chief Technology Officer, and Tarun Jain, who joined as our Chief Product Officer.

Wish prioritizes products and merchants that receive

positive ratings and feedback from our users.

The Wish feed prominently displays products that

match an individual user's interests.

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Wish | Q2 2021 Shareholder Letter

SECOND QUARTER 2021 RESULTS

Core Marketplace

Core Marketplace revenue decreased 32 percent year-over-year to $378 million in Q2, primarily due to lower order volume and conversion of new buyers. Active buyers during the quarter declined 44 percent year-over- year to 17 million. Core Marketplace Revenue per Active Buyer was $22, an increase of 21 percent year-over-year. On a year-over-year basis, Core Marketplace revenue decreased 21 percent in Europe, 44 percent in North America, 29 percent in South America and 21 percent in the Rest of World.

From a product perspective, we are working to ensure that Wish offers value and accessibility to all users. During Q2, Wish obtained a Payment Services License from the Dutch Central Bank, which enables us to process transactions and increase control over the payments value chain, while also reducing reliance on third parties. Initially, Wish plans to use the license to pay out its merchants in Europe directly. Longer-term, we may decide to bring additional financial services to the European market that specifically target European consumers.

ProductBoost

ProductBoost revenue increased 11 percent year-over-year to $50 million, driven by merchants increasing their advertising spending with us compared to the prior year period when advertisers pulled back ad spend as the pandemic intensified.

Logistics

Logistics revenue in the second quarter was $228 million, or a 126 percent year-over-year increase. Our logistics revenue growth was driven by continued merchant monetization improvement and strong adoption of our end-to-end shipping solutions.

For most merchants in our network, shipping and logistics are not a core competency. Wish has built a program that allows merchants to outsource all of their logistics needs so that they can focus on running their businesses and benefit from Wish's volume discounted rates. Wish now performs all logistics services for more than 87 percent of packages shipped through Wish's proprietary platform and is providing an end-to- end shipping solution in nearly all of our top 40 markets.

We strive to continuously improve our logistics offerings to meet the evolving needs of our users and merchants. Integral to that process is optimizing average Time to Door (TTD), driving shipping efficiencies and encouraging more merchants to forward-deploy inventory.

One important action we are taking to shorten delivery times is further diversifying our merchant network outside of China with more U.S. and Europe-based merchants. During Q2, we expanded our merchant

1Sansome videos on social media use

influencer marketing to acquire new users and

boost brand recognition.

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Wish | Q2 2021 Shareholder Letter

network by 235 percent year-over-year in Europe and by 53 percent year- over-year in the U.S.

These locally-based merchants usually can ship products faster when they opt in to our Wish Express shipping solution. Wish Express listings, which increased by 291 percent year-over-year during Q2, generally have an average TTD of under five days because they are being shipped from a local merchant or a China-based merchant who has forward deployed inventory in bulk into the user's local market.

In July, as part of our effort to encourage forward deployment, we introduced a new revenue share structure. Wish will collect a lower portion of revenue from merchants that forward-deploy inventory into local markets to offset some of their costs. This allows merchants to offer Wish Express shipping via locally-registered entities or local partner warehouses, which typically leads to shorter TTDs, increased order frequency and improved user satisfaction. We believe that the new structure will also encourage merchants to sell more products that generate high-frequency purchases, such as household supplies.

For some users, a "buy online, pick up in store" option is preferable since it can result in up to 40 percent cost savings on shipping. To accommodate those users, we continued to expand our Wish Local network, which includes more than 60,000 brick-and-mortar stores around the world. During Q2, orders shipped to Wish Local partners accounted for approximately 10 percent of total order volume.

User Metrics

Total monthly active users, or MAUs1, declined 22 percent year-over-year to 90 million and LTM active buyers2 decreased 26 percent year-over- year to 52 million. We believe the decline in MAUs was primarily driven by a decrease in overall mobile usage as stay-at-home restrictions eased around the world and lower marketing efficiency as the costs to advertise on key digital platforms increased.

Costs & Expenses

Cost of revenue for the second quarter of 2021 was $272 million, a 31 percent year-over-year increase. Non-GAAP cost of revenue, which excludes stock-based compensation, was $267 million, an increase of 28 percent year-over-year. The majority of the increase was primarily due to costs related to higher volume of logistics services and an increase in headcount as compared to the prior year. The increase was partially offset by lower payment processing fees due to the lower volume of orders compared to Q2 2020.

1  We define MAUs as the number of unique users that visited the Wish platform, either on the mobile app, mobile web, or on a desktop, during the month.

2  As of the last date of each reported period, the number of unique active buyers is determined by counting the total number of individual users who have placed at least one order on the Wish platform, either on the mobile app, mobile web, or on a desktop, during the preceding 12 months.

The Wish app offers a fun and

entertaining shopping experience.

Users can shop for items available for same day

pick up at a Wish Local partner location.

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