Why Shopify Stock Is Plummeting This Week

What happened

Shopify ( SHOP 0.20% ) stock is seeing another big pullback in this week’s trading. Heading into Friday’s market open, the e-commerce services company’s shares traded down roughly 9.6% from last week’s market close, according to data from S&P Global Market Intelligence.

A report published by The Street on Monday indicated that Alphabet is planning to make a bigger push into the e-commerce space, and the news sent Shopify stock tumbling. Shopify did get a boost after it was announced that Ark Invest CEO Cathie Wood had bought more of the stock for her Ark Innovation ETF, but shares are still down big across the last week of trading. 

Image source: Getty Images.

So what

E-commerce stocks have broadly faced pressures as pandemic-related tailwinds have eased. Shopify and other companies in the space are facing tough comparisons to the height of pandemic-related social-distancing and shelter-in place conditions, and this has prompted investors to exit stocks in the category and seek returns elsewhere. Alphabet’s strong position in search, mobile, and browser services give it strong foundations to become a bigger player in e-commerce, and the potential for a resource-rich competitor moving in on its turf has created more selling pressure for Shopify stock. 

Now what

Shopify hasn’t provided detailed sales guidance for the current fiscal year, but comments from management generally reflect the fact that the company is facing a more challenging growth environment and that sales will expand at a rate significantly below the 57% annual growth it posted in 2021. On the other hand, management still expects the business to grow at a strong clip that outpaces the growth of the overall e-commerce industry, and it’s moving forward with big hiring initiatives this year.

Shopify still has a promising long-term growth outlook, but the company is facing lumpy business performance in the near term and the threat of new rivals vying for its market. The company now has a market capitalization of roughly $88.8 billion and is valued at approximately 14.7 times this year’s expected sales and 210 times expected earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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