What happened
Shares of Shopify (SHOP -2.90%) were sliding today as the e-commerce software company was one of several tech stocks to fall in sympathy with Snap (SNAP -2.94%), which warned that second-quarter results would come in below its earlier guidance and blamed a deteriorating macroeconomic environment for the downward revision. Though it might seem surprising for Shopify to fall on the news, the two companies are more closely connected than you might think.
As of 1:35 p.m. ET, Shopify stock was down 10.4%, while Snap had plunged 41.9% at the same time.
Image source: Getty Images.
So what
Digital advertising stocks in both social media and ad tech fell across the board, but Shopify was also one of the stocks to take a hit. Its 1.75 million merchants count on social media sites to drive demand for their products so if Snap is experiencing headwinds in demand, it's likely that at least some of that is coming from Shopify sellers.
Shopify sellers also have a close relationship with Meta Platforms' Facebook advertising, and a slowdown in ad spending across the sector is going to be correlated with a slowdown in Shopify sales.
In addition to macro headwinds related to rising interest rates and inflation, consumer spending is shifting back from goods to services, which is also expected to be a challenge for Shopify and its e-commerce peers as the company doesn't benefit from spending on travel or restaurants.
Now what
Like much of the high-growth tech sector, Shopify stock has fallen sharply in recent months, down about 80% from its peak last November. However, Shopify's guidance in its first-quarter earnings report offered some reason for hope. The company said that revenue growth would improve from the first-quarter mark of 22% in the second half of the year with its best quarter of the year expected to come in the fourth quarter.
Of course, guidance is always subject to change, but Shopify will enjoy easier comparisons as the year progresses. Whether Snap's warning will prove accurate remains to be seen, but the recent market malaise could last several more months.
