Please ensure Javascript is enabled for purposes of website accessibility

Shopify Stock Comes Under Fire

By Rick Munarriz - May 22, 2018 at 9:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Adobe snaps up a smaller Shopify rival, and Citron Research has Shopify in its crosshairs again.

The new trading week is kicking off with a pair of knocks on dot-com darling Shopify (SHOP 0.54%). Shares of the e-commerce platform provider took a 2% hit on Monday -- bucking the general market's rise -- after noted worrywart Citron Research took another shot at Shopify. The stock continued to drift lower in after-hours trading following Adobe Systems (ADBE 0.66%) announcing the acquisition of Shopify rival Magento. 

Adobe's $1.68 billion deal for Magento may not seem like a big deal, but it's one that could turn Shopify's small rival into a larger foe. Adobe could easily integrate Magento's offerings into its growing suite of digital products for businesses that already rely on Adobe. With some more skin in the e-commerce game, an Adobe-backed Magento can eat away at Shopify's growth.

Shopify working with apps on a smartphone and laptop.

Image source: Shopify.   

Turning the storefront into the front line 

Citron Research began writing scathing critiques about Shopify's valuation and business model late last year. The bearish thesis argued that the affiliate marketing being used in recruiting new storefronts was aggressive and bordering on illegal. Citron also called into question Shopify's customer count, a figure that has only continued to move higher with every passing quarter. 

Monday's tweet drew attention to a piece in The Wall Street Journal that Citron feels calls out what it describes as "affinity scam marketing" at Shopify.  

Citron's track record in knocking Shopify has been mixed. The stock has taken a hit in the past when Citron waxes bearish, but it has typically bounced back. Shopify stock has risen 24% since Citron's first attack seven months ago, and the gain has been even greater for investors taking advantage of the initial sell-off. 

Shopify has answered with heady growth for a company eyeing 10 figures in revenue this year. Shopify's top line surged 68% in its latest quarterly report, the latest in the e-commerce enabler's string of "beat and raise" reports. 

Guidance calls for revenue to slow to just a 52% to 55% gain in the current quarter, but we've seen Shopify toy with analysts before as it serves up lowball projections that it can barrel through with ease. We can't dismiss some of Citron's knocks. We also can't ignore the growth that Magento can experience under Adobe's wing. However, betting against Shopify has more often than not turned out to be a losing wager. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shopify Inc. Stock Quote
Shopify Inc.
$31.41 (0.54%) $0.17
Adobe Inc. Stock Quote
Adobe Inc.
$368.48 (0.66%) $2.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.