What happened
Shares of Shopify (SHOP 4.90%) fell 7.6% on Tuesday after a worrisome report from Reuters warned that the e-commerce platform's customer gains could be stalling.
So what
Shopify gained just 71,000 merchants in the first half of 2022, according to research firm YipitData. That's down from 680,000 in 2020 and 314,000 in 2021.
"Unless Shopify adds roughly twice as many merchants in the second half of 2022 as the first half, we estimate they could be on pace for the lowest net merchant additions in a year since at least 2018," YipitData's analysts told Reuters.
Now what
Higher energy, food, and housing costs are forcing many consumers to cut back on their discretionary spending. Inflationary pressures are also taking a bite out of many online merchants' profits. Small businesses, which have long served as a key source of growth for Shopify, have been particularly hard hit. Together, these trends appear to be slowing the trend toward online entrepreneurship.
In late July, Shopify said it would reduce its workforce by roughly 10%. CEO Tobias Lütke admitted to overestimating the growth of the e-commerce market during the more recent stages of the pandemic. When that growth didn't materialize, Shopify was forced to rein in its expenses.
YipitData's research suggests those cuts were warranted -- and that Shopify may have a ways to go before its merchant growth rates stabilize. Reuters' report could also indicate that even with its shares down roughly 80% from their highs back in November, the sharp downturn in Shopify's stock price might not have reached its conclusion.
