Insights

Why Shopify Stock Crashed 36.9% in April

What happened
Shares of Shopify (NYSE: SHOP) crashed by 36.9% in April, according to data provided by S&P Global Market Intelligence.
Year to date, shares of the e-commerce platform operator have lost more than two-thirds of their value.
Image source: Getty images.

So what
The sharp fall in Shopify’s share price should be taken in context when compared to the decline in the Nasdaq Composite Index. The index, which is made up mostly of growth stocks, slid 13.3% in its worst month since October 2008. The company had announced a 57% year-over-year jump in revenue for 2021 and enjoyed a 47% year-over-year increase in gross merchandise value. Harley Finkelstein, Shopify’s president, had admitted that the last two years have been “extraordinary” for the provider of internet infrastructure for a wide range of businesses looking to digitize and sell online.
Investors are probably spooked by Shopify’s guidance for lower year-over-year revenue growth come the first quarter of 2022, along with revised contract terms with its partners that will change the revenue recognition from gross, to net.
These warnings, coupled with increased marketing spending and platform enhancements, could hurt earnings. Operating income might come in significantly lower than in 2021.
Now what
Shopify surprised the market by announcing a 10-for-1 stock split for both its Class A and B shares to make them more affordable for investors.
While this practice is in line with what Alphabet (NASDAQ: GOOGL) has done recently, the company had an additional announcement: the creation of a new class of shares, the Founder shares, that will be handed to Tobi Lütke, the founder of Shopify. This will provide him and his immediate family with a total of 40% of the voting power of the company’s outstanding shares. However, this share will only be active if he continues to stay with Shopify, and is not transferable. 
Though this announcement may seem unconventional, investors should note that Lütke already controls the majority of voting shares in the company, so the creation of this additional class of shares is not expected to materially change anything.
Meanwhile, Shopify is focusing on a few investment themes for this year that include new ways for merchants to connect with more buyers, deepening the relationship between both parties, and helping merchants to go global with their products and services. The company has laid out a total addressable market of $160 billion that it plans to tap into and is confident of being able to generate consistent growth in the years ahead.Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Royston Yang has positions in Alphabet (A shares). The Motley Fool has positions in and recommends Alphabet (A shares) and Shopify. The Motley Fool recommends Alphabet (C shares) and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy. –

What happened

Shares of Shopify (NYSE: SHOP) crashed by 36.9% in April, according to data provided by S&P Global Market Intelligence.

Year to date, shares of the e-commerce platform operator have lost more than two-thirds of their value.

Image source: Getty images.

So what

The sharp fall in Shopify’s share price should be taken in context when compared to the decline in the Nasdaq Composite Index. The index, which is made up mostly of growth stocks, slid 13.3% in its worst month since October 2008. The company had announced a 57% year-over-year jump in revenue for 2021 and enjoyed a 47% year-over-year increase in gross merchandise value. Harley Finkelstein, Shopify’s president, had admitted that the last two years have been “extraordinary” for the provider of internet infrastructure for a wide range of businesses looking to digitize and sell online.

Investors are probably spooked by Shopify’s guidance for lower year-over-year revenue growth come the first quarter of 2022, along with revised contract terms with its partners that will change the revenue recognition from gross, to net.

These warnings, coupled with increased marketing spending and platform enhancements, could hurt earnings. Operating income might come in significantly lower than in 2021.

Now what

Shopify surprised the market by announcing a 10-for-1 stock split for both its Class A and B shares to make them more affordable for investors.

While this practice is in line with what Alphabet (NASDAQ: GOOGL) has done recently, the company had an additional announcement: the creation of a new class of shares, the Founder shares, that will be handed to Tobi Lütke, the founder of Shopify. This will provide him and his immediate family with a total of 40% of the voting power of the company’s outstanding shares. However, this share will only be active if he continues to stay with Shopify, and is not transferable. 

Though this announcement may seem unconventional, investors should note that Lütke already controls the majority of voting shares in the company, so the creation of this additional class of shares is not expected to materially change anything.

Meanwhile, Shopify is focusing on a few investment themes for this year that include new ways for merchants to connect with more buyers, deepening the relationship between both parties, and helping merchants to go global with their products and services. The company has laid out a total addressable market of $160 billion that it plans to tap into and is confident of being able to generate consistent growth in the years ahead.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Royston Yang has positions in Alphabet (A shares). The Motley Fool has positions in and recommends Alphabet (A shares) and Shopify. The Motley Fool recommends Alphabet (C shares) and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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