Insights

Why Shopify Stock Is Sinking Again Today

What happened
Shopify (NYSE: SHOP) stock is once again losing substantial ground. The e-commerce service’s company’s share price was down roughly 6.5% as of p.m. ET on Friday. Meanwhile, the S&P 500 index was down, and the Nasdaq Composite index had slipped 6.5% in the day’s session.
While there doesn’t appear to be any new business-specific news behind the pullback on Shopify stock today, bearish momentum continues to grip the broader market, and investors are still digesting the company’s disappointing first-quarter results. The e-commerce stock is now down roughly 15% in May, and it trades down 71% year to date. 
Image source: Getty Images.

So what
Shopify published first-quarter results before the market opened yesterday, posting non-GAAP (adjusted) earnings per share on revenue of $1.2 billion. Sales were up 22% year over year, but the average analyst target had called for per-share earnings of $0.63 on revenue of $1.24 billion.
The company also announced that it would be acquiring fulfillment services specialist Deliverr for $2.1 billion. The market appears to be less than thrilled with the timing of the deal and the news that Shopify is devoting resources to grow in the low-margin fulfillment space.   
Shopify’s first-quarter report didn’t just arrive with results that shocked the market, the disappointing performance also coincided with macroeconomic pills that the market is finding hard to swallow. The Federal Reserve held its second meeting of the year on Wednesday, and it announced a 50-basis-point interest rate hike and issued hawkish comments that left investors running for the exits.
Given that inflation has been at its highest level in 40 years, investors had broadly anticipated that the Fed would announce a 50-basis-point hike at the meeting, but the committee also made statements that point toward an increased likelihood of 50-basis-point increases being delivered with each of the remaining five meetings this year. Fed chairman Jerome Powell also highlighted economic risk factors related to China’s new COVID-19 lockdowns and the war in Ukraine. 
Now what
This year’s trading has been brutal for Shopify shareholders. The company expects that sales growth will pick up in the second half of the year, and in the fourth quarter especially, but investors have become impatient amid mounting macroeconomic risk factors.
Shopify now has a market capitalization of roughly $62.6 billion, and the company is valued at roughly 8.3 times this year’s expected sales. While the company’s growth-dependent valuation could predispose the stock to more turbulence in the near term, Shopify is still a great company that looks poised to benefit from long-term trends, and shares should eventually see strong recovery from current pricing levels.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool 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

Shopify (NYSE: SHOP) stock is once again losing substantial ground. The e-commerce service’s company’s share price was down roughly 6.5% as of p.m. ET on Friday. Meanwhile, the S&P 500 index was down, and the Nasdaq Composite index had slipped 6.5% in the day’s session.

While there doesn’t appear to be any new business-specific news behind the pullback on Shopify stock today, bearish momentum continues to grip the broader market, and investors are still digesting the company’s disappointing first-quarter results. The e-commerce stock is now down roughly 15% in May, and it trades down 71% year to date. 

Image source: Getty Images.

So what

Shopify published first-quarter results before the market opened yesterday, posting non-GAAP (adjusted) earnings per share on revenue of $1.2 billion. Sales were up 22% year over year, but the average analyst target had called for per-share earnings of $0.63 on revenue of $1.24 billion.

The company also announced that it would be acquiring fulfillment services specialist Deliverr for $2.1 billion. The market appears to be less than thrilled with the timing of the deal and the news that Shopify is devoting resources to grow in the low-margin fulfillment space.   

Shopify’s first-quarter report didn’t just arrive with results that shocked the market, the disappointing performance also coincided with macroeconomic pills that the market is finding hard to swallow. The Federal Reserve held its second meeting of the year on Wednesday, and it announced a 50-basis-point interest rate hike and issued hawkish comments that left investors running for the exits.

Given that inflation has been at its highest level in 40 years, investors had broadly anticipated that the Fed would announce a 50-basis-point hike at the meeting, but the committee also made statements that point toward an increased likelihood of 50-basis-point increases being delivered with each of the remaining five meetings this year. Fed chairman Jerome Powell also highlighted economic risk factors related to China’s new COVID-19 lockdowns and the war in Ukraine. 

Now what

This year’s trading has been brutal for Shopify shareholders. The company expects that sales growth will pick up in the second half of the year, and in the fourth quarter especially, but investors have become impatient amid mounting macroeconomic risk factors.

Shopify now has a market capitalization of roughly $62.6 billion, and the company is valued at roughly 8.3 times this year’s expected sales. While the company’s growth-dependent valuation could predispose the stock to more turbulence in the near term, Shopify is still a great company that looks poised to benefit from long-term trends, and shares should eventually see strong recovery from current pricing levels.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool 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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