• Tue. Nov 29th, 2022

The Story Behind Shopify Stock’s Early Market Drop (NYSE:SHOP)

BySamuel M. Craig

Oct 7, 2022

Shopify (NYSE: SHOP), a leader in e-commerce infrastructure systems, got off to a bad start in Friday trading as stocks plunged. This is despite news from the European Commission that Shopify was set to make online shopping safer for Europeans with a series of planned changes. Shopify is set up to offer business information fields, along with contact information, to its templates and more.

The last 12 months for Shopify stocks have been mostly down and noticeably down. A modest rally started in October 2021 and lasted through November, but after about Thanksgiving, Shopify began a multi-month decline.

This decline was briefly interrupted by a meager rally in March 2022. This rally proved unsustainable. In May, the company was now largely stuck in its $27-$33 trading range.

While news of Shopify’s plans to better comply with European Union regulations should be good news, the market isn’t taking it that way. In fact, this is just the beginning of things at Shopify, and what has emerged so far doesn’t look so good. This former darling of the pandemic takes it on the chin.

I was bearish in May, the last time I talked about it, and there is no reason to change my position. I remain bearish on Shopify, a business where too much is going wrong and not enough is going well.

Investor sentiment deteriorates on SHOP stock

Investors also don’t seem bullish on Shopify. Currently, Shopify has a smart score of 2 out of 10 on TipRanks. This is the second lowest level of “underperformance”. This suggests that Shopify has an excellent chance of lagging the broader market.

This is a suggestion very well supported by the insider trading levels. Insider trading at Shopify has been extremely sales-weighted over the past year. The bottom in Shopify shares has brought a few more buyers to the table in recent months. However, it’s still clear Shopify insiders are cashing in.

Several informative sales have taken place over the past month, with the cumulative total of all such sales amounting to just over $803,000 for the past three months alone. Insiders have racked up 14 sell trades versus just six buys since last July.

A look at the past 12 months only deepens the apparent conviction among insiders to sell. Insiders have bought Shopify stock 30 times over the past year. However, they sold out 144 times.

Just the start of Shopify’s problems

Certainly, the decision to make buyers safer on Shopify is a good plan. It’s a service that a decent marketing department can do great things with. People are concerned about online shopping security as it is. So Shopify’s move will likely help ease some concerns, at least in the European Union. However, Shopify’s target market doesn’t stop at the Whitecliffs of Dover or the Russian border. There’s more to Shopify than Europe, and that market doesn’t look very good.

First, there are signs that customers are abandoning the platform. Five years after its launch, eBay (NASDAQ: EBAY) removed their app from the Shopify store.

Reports noted that for several months before the official takedown, the eBay app was not syncing listings between platforms. The eBay app reportedly had a user score of 2.7 out of five, although some of those ratings came after the checkout.

Then there are the intellectual property issues. Shopify recently settled a lawsuit from a group of publishers for pirating college textbooks. University students have been searching for years for a way to save money on the price of textbooks, which makes hacking an attractive option. However, Shopify seems to have settled this matter “out of court”. This can help the perception of Shopify among sellers.

However, there are potential signs of recovery. Shopify is improving its position in offline shopping through things like Shopify POS Go. The Shopify POS Go works as a point-of-sale system for physical stores. It includes its own barcode scanner and allows merchants to turn virtually any part of a store into a checkout.

Shopify has also decided to strengthen its international operations. Just three weeks ago, the company rolled out Shopify Translate & Adapt, along with Shopify Markets Pro.

Shopify Translate & Adapt pretty much does what the name suggests, localizing customer experiences to be regionally appropriate, enabling automatic translation of on-site text, and manual editing to ensure the best results.

Shopify Markets Pro, on the other hand, handles compliance issues, offers shipping via DHL, and dramatically improves the customer experience. This improves the chances of returning customers and merchants continuing to use Shopify.

Is Shopify Stock a Buy, Sell, or Hold?

When it comes to Wall Street, Shopify has a moderate buy consensus rating. This is based on 12 purchases and 12 reservations attributed in the last three months. The average Shopify price target of $42.98 implies an upside potential of 54.8%. Analyst price targets range from a low of $30 per share to a high of $75 per share.

Conclusion: SHOP Stock is a tempting but dangerous proposition

It’s easy to be tempted to buy on Shopify because it’s trading below its lowest target price. Improvements to its offline operations are expected to help reduce the impact of any early sales it has made due to the pandemic. However, with potential hacking issues and issues with some of the larger malls, there are clear and present dangers to being a Shopify investor. Worse still, we are in a macroeconomic environment that spells bad news for retail of almost every kind. This will hurt Shopify even more.

That’s why I’m bearish on Shopify. There are positives here, and it’s possible this could shake things up. Still, given the mass of issues that exist, for retail in general and Shopify itself in particular, it doesn’t seem like a good idea to buy right now.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.