Shopify Cancels Fulfillment Contracts; Shares Fall 14%

Shopify’s (SHOP) share price plunged 14% on Friday after the e-commerce company terminated contracts with several warehouses and fulfillment partners. The Insider reports that the cancellation could reduce the scope of the company’s work and affect its ability to pack and ship orders for merchants.

Shopify is a Canadian company that operates a cloud-based commerce platform and allows small and medium-sized businesses to operate online. Its software is used to run businesses across all sales channels.

Termination of Contracts

According to two fulfillment partners, Shopify will end up with roughly half of its previous capacity to ship orders to merchants. Additionally, the move is in line with the company’s long-term efforts to launch an e-commerce fulfillment service that will take on Amazon (AMZN).

The acquisition of third-party logistics companies is one of the options touted by analysts, and the company could start operating its own warehouses.

In 2019, the company unveiled Shopify Fulfillment Network and recently announced plans to invest $1 billion to build the network. Operating an in-house fulfillment network is seen as one of the ways to help merchants on the platform by enhancing delivery speeds at low costs.

Analysts’ Take

Last week, Roth Capital analyst Darren Aftahi reiterated a Buy rating on Shopify stock and cut the price target to $1,400 from $1,650, implying 58.71% upside potential to the current level. The analyst expects 30% year-over-year gross merchandise volume growth and 31% merchant’s business growth in Q4. Additionally, the analyst is confident about the impact of the company’s strategic partnership with JD.com (JD).

Consensus among analysts is a Moderate Buy based on 13 Buys and 8 Holds. The average Shopify price target of $1,576.84 implies 78.76% upside potential to current levels.

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