Shopify (NYSE:SHOP), a leader in e-commerce infrastructure systems, kicked off Friday’s trading in a bad way as shares plunged. This was despite news from the European Commission that Shopify was about to make online shopping safer for Europeans thanks to a series of planned changes. Shopify is set to offer fields for information about companies, as well as contact details, to its templates and the like.
The last 12 months for Shopify shares have been mostly downhill and substantially downhill at that. A modest rally kicked off in October 2021 and lasted into November, but after about Thanksgiving, Shopify started a multi-month drop.
That drop was interrupted briefly by a scant rally in March 2022. That rally proved unsustainable. By May, the company was now largely locked into its $27 – $33 trading range.
While news of Shopify’s plans to better conform to European Union regulations should be good news, the market isn’t taking it that way. In fact, that’s just the start of things at Shopify, and what’s emerged so far doesn’t look all that good. This former pandemic darling is taking it on the chin.
I was bearish in May, the last time I talked about it, and there’s no reason to change position. I remain bearish on Shopify, a company where too much is going wrong and not nearly enough is going right.
Investor Sentiment is Souring on SHOP Stock
Investors don’t seem bullish on Shopify either. Currently, Shopify has a 2 out of 10 Smart Score on TipRanks. That’s the second-lowest level of “underperform.” It suggests that Shopify has an excellent chance of lagging behind the broader market.
That’s a suggestion very much supported by insider trading levels. Insider trading at Shopify has been extremely Sell-weighted for the last year. Shopify shares’ bottoming out has brought a few more buyers to the table in recent months. However, it’s still clear that Shopify insiders are cashing out.
Multiple informative sales took place in the last month, with the cumulative total of all those sales adding up to just over $803,000 for the last three months alone. Insiders racked up 14 Sell transactions against just six Buys since last July.
A look at the last 12 months only deepens the apparent conviction among insiders to sell off. Insiders bought Shopify stock on 30 occasions over the last year. However, they sold on 144 occasions.
Just the Start of Shopify’s Troubles
Granted, the move to make shoppers safer on Shopify is a good plan. It’s one that a decent marketing department can do great things with. People are concerned about the safety of online shopping as it is. Thus, Shopify’s move will likely help shore up 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 isn’t looking all that good.
First, there are signs that customers are abandoning the platform. Five years after it first launched, eBay (NASDAQ:EBAY) pulled its app from the Shopify store.
Reports noted that for several months prior to the official pull, the eBay app wouldn’t sync up listings between the platforms. The eBay app reportedly had a user score of 2.7 out of five, though some of these ratings emerged after the departure.
Then there are issues of intellectual property. Shopify recently settled one suit from a publisher’s group over the piracy of college textbooks. College students have longed for a way to save money on textbook prices for years, making piracy an attractive option. However, Shopify seems to have settled this case “amicably.” That may help Shopify’s perception among sellers.
However, there are some potential signs of recovery. Shopify is improving its position in offline shopping thanks to things like the Shopify POS Go. The Shopify POS Go works as a point-of-sale system for brick-and-mortar shops. It includes its own barcode scanner and allows merchants to make pretty much any part of a store a checkout stand.
Shopify also moved to shore up its international operations. Just three weeks ago, the company rolled out Shopify Translate & Adapt, as well as Shopify Markets Pro.
Shopify Translate & Adapt does pretty much what the name suggests, localizing customer experiences to be region-appropriate, allowing for automatic translation of text on the site, and manual editing to ensure the best results.
Shopify Markets Pro, meanwhile, manages compliance issues, offers shipping through DHL, and makes the customer experience work a lot better. That improves the chance that customers will come back and that merchants will keep using Shopify.
Is Shopify Stock a Buy, Sell, or Hold?
Turning to Wall Street, Shopify has a Moderate Buy consensus rating. That’s based on 12 Buys and 12 Holds assigned in the past three months. The average Shopify price target of $42.98 implies 54.8% upside potential. 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 in on Shopify, as it trades below its lowest price target. Improvements in its offline operations should help undercut the impact of all the front-loading in sales it did thanks to the pandemic. However, with potential piracy troubles and issues with some of the biggest shopping venues, there are clear and present dangers to being a Shopify investor. Worse, we’re in a macroeconomic environment that spells bad news for retail of nearly every sort. That’s going to hurt Shopify further.
That’s why I’m bearish on Shopify. There are some bright spots here, and it’s possible that it could pull things around. Nonetheless, given the sheer bulk of troubles out there, for retail in general and Shopify itself in particular, it doesn’t look like a good idea to buy in right now.
