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Why Shopify Stock Cratered on Thursday

By Danny Vena – Jan 13, 2022 at 2:39PM

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The e-commerce platform provider has enraged developers with changes to its app store.

What happened

Shares of Shopify (SHOP 1.77%) slumped on Thursday, losing as much as 8.3%. At 1:56 p.m. ET, the stock was still off 7.4%.

The catalyst that drove the technology stock lower was changes to its app store that had developers seeing red.

So what

Shopify rolled out new algorithms in mid-December that resulted in several updates. In addition to minor changes to image requirements, it also included significant modifications to how the platform recommends apps that help fill out Shopify's robust ecosystem.

A frustrated-looking person with hands outstretched toward a computer monitor.

Image source: Getty Images.

Developers that create apps that complement Shopify's platform have complained that, because of these recent updates, apps from direct competitors now appear at the bottom of the page that provides details about their apps, according to an article that first appeared in Business Insider

Many developers pay for advertising to drive traffic to their apps in Shopify's App Store. As a result of the recent changes, competitors who aren't paying for ads are now benefiting from the ad spending of other developers.

Josh Highland, CEO of Venntov -- a Shopify app development company -- complained, saying: "The number of impressions that we're getting per day has dropped to almost zero after this recent change."

Another problematic change is that the most-installed apps now appear at the top of Shopify's homepage, including bigwigs Meta Platforms' (META 1.52%) Facebook and Alphabet's (GOOGL 1.16%) (GOOG 1.08%) Google. This puts many smaller app developers at a disadvantage to their larger rivals.

Now what

Shopify lists more than 7,000 apps in its App Store that help merchants customize how they and their customers interact with the platform. These can include everything from marketing and store design to product sourcing and shipping.

The company relies heavily on its developers to help attract and retain merchants by providing access to features that Shopify itself doesn't have. The company has grown its merchant count to more than 1.7 million, many of whom were sold on the ease of the platform resulting from these snap-on apps.

By alienating its most popular developers, Shopify could end up stunting its own growth.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena owns Alphabet (A shares), Meta Platforms, Inc., and Shopify and has the following options: long January 2023 $1,140 calls on Shopify and long January 2023 $1,160 calls on Shopify. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Meta Platforms, Inc., and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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