Shares of Shopify (SHOP 0.92%) crashed 17.2% this week, according to S&P Global Market Intelligence. The decline had multiple causes, including Wall Street analysts lowering their price targets, an acquisition rumor, and a new product announcement from competitor Amazon (AMZN 0.37%). It's also possible that investors got skittish with the technology and internet sector in general after Netflix crashed almost 40% this week following a weak earnings report.
There were several reasons for Shopify's stock drop this week. First, investment bank analysts lowered their price targets on the stock, which could have influenced investors to decide to sell their shares.
Second, a rumor dropped that Shopify is interested in buying start-up Deliverr at a valuation of more than $2 billion. Deliverr helps companies selling online improve their delivery times from platforms like eBay, Amazon, Wish, and yes, Shopify. The acquisition seems like a smart move, with Shopify's recent ambitions including delivery and fulfillment solutions for its merchants, but investors may not like it because of the price tag.
Third, on Thursday Amazon announced a new service called Buy With Prime. According to the press release, online sellers who use Fulfillment by Amazon can now offer the benefits of Amazon Prime -- namely, fast and free shipping powered by Amazon -- on their own websites instead of just on Amazon.com. This isn't necessarily Amazon announcing that it's now competing with Shopify, as it isn't building websites for these sellers. However, the move will likely undercut Shopify's fulfillment plans and could hurt its payment revenue (a huge portion of its business) if customers decide to pay using Buy With Prime. This could severely impact Shopify's business, so it's not a surprise that the stock is down on the news.
Lastly, there's some general skittishness in the market after Netflix reported terrible earnings results this week. That seemingly spooked many technology and internet investors, possibly exacerbating the losses in Shopify stock.
There were a lot of factors affecting Shopify stock this week, and to be honest, it's hard to see exactly what caused it to drop the most. But over the long run, investors will need to focus on one thing that happened this week, and that's Buy With Prime.
The new Amazon initiative has the chance to smother Shopify's delivery and fulfillment initiatives, and could cause it to lose payment volume to the technology giant. It still remains to be seen how many consumers will adopt this Buy With Prime service, but any Shopify investor should keep a close eye on its progress.