Why Shopify Stock Crashed 12% on Wednesday

Shopify (TSX:SHOP)(NYSE:SHOP) stock fell on Wednesday, as earnings from peers started to come in below estimates. But should investors worry?

Amy Legate-Wolfe

Author Bio

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband.

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“October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published February 2, 2022 3:00 pm EST

Shopify (TSX: SHOP)(NYSE:SHOP) lost much of the gains returned in the past few days, losing 12% on Wednesday. This came after one of its e-commerce peers, PayPal (NASDAQ: PYPL), reported poor earnings.

What happened?

Shopify stock seemed to be rallying after a tech crash brought down the Canadian e-commerce mega-giant. Shares fell to $990 and climbed back up by about 25% this week. Since then, shares fell 12% on Wednesday after the news from PayPal.

Compared to PayPal, it’s a scratch on Shopify stock. Shares of the company fell 25%, a quarter of its value in just a day and are still dropping. So, it has many investors wondering what could be in store for Shopify when earnings come out this month.

So what?

You might be wondering what PayPal and Shopify stock have to do with each other. However, it actually goes even deeper than that. The retail sector has had a tough go over the last few months. Just as the economy seemed to be reopening, the Omicron variant hit. Then, inflation skyrocketed. That led to not the best holiday season for anyone.

PayPal had a tough go especially, trying to get cash from existing customers and moving away from gaining new ones. But that’s still where Shopify stock lies; it brings in new customers and merchants around the world. In fact, during Black Friday to Cyber Monday, it smashed records, bringing in $6.3 billion in sales. Time will tell if the holidays continued in such a vein.

Now what?

Analysts remain positive about the future of Shopify stock, and, in fact, they see now as a great buying opportunity. It seems that PayPal’s goals were too much for it to handle. Meanwhile, Shopify remains strong when it comes to beating analysts’ and, indeed, its own estimates.

While we’re unlikely to see another quarter of triple-digit year-over-year growth, double-digit growth still looks likely — especially as it rolls out its Shopify Payment, Shopify Fulfillment, and even TikTok shopping. The company doesn’t seem to be slowing down when it comes to innovation, so investors likely won’t slow down either.

Shopify stock remains at a consensus target price of $2,000 by analysts. Shares are down 10% as of writing, and it trades at a relative strength index (RSI) of 35, putting it in oversold territory.