Why Shopify Stock Dived 15% Last Week

SHOP stock has consistently been falling the last five sessions in a row, as worse-than-expected economic data from the U.S. market are keeping tech investors worried.

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Image source: Getty Images.

What happened?

Shares of Shopify (TSX:SHOP)(NYSE:SHOP) continued to trade on a bearish note for the second consecutive week, posting its biggest weekly losses in seven weeks. SHOP stock slipped about 15% last week, underperforming the broader market by a wide margin. By comparison, the TSX Composite Index posted a minor 0.3% loss last week. With this, Shopify stock is now down by about 75% in 2022 so far.

So what?

While there was no apparent company-specific news that drove Shopify stock downward last week, it primarily fell as the latest weaker-than-expected retail sales and home sales data from the U.S. market hurt tech investors’ sentiments. The data reignited fears about slowing economic growth and raised the possibility of a near-term recession. Notably, the tech sector has seen a big crash in 2022, with the shares of most tech companies hovering deep in the red territory.

Another key factor that could be responsible for Shopify’s recent losses could be its worse-than-expected second-quarter financial results. On July 27, the Canadian e-commerce giant revealed that its revenue growth in the second quarter slowed to 15.7% year over year from 21.7% in the previous quarter. As Shopify continued to expand its research and development and marketing teams during the quarter, it reported an adjusted net loss of US$38.5 million — significantly worse than analysts’ estimate of US$27.9 million in net profit.

Now what?

Clearly, concerns about Shopify’s slowing financial growth and macro factors, including high inflation, rising interest rates, and geopolitical tensions, are continuing to take a big toll on investors’ sentiments. However, these factors aren’t likely to have a major impact on the Canadian tech firm’s long-term growth prospects, as the demand for its digital commerce solutions is expected to continue rising in the coming years. Given that, its recent big losses make it one of the most attractive Canadian tech stocks to buy now and hold for the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has positions in and recommends Shopify. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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