Shares of Shopify (SHOP 1.61%) slipped on Tuesday, falling as much as 6.5%. At the end of the trading session, the stock was still down 6%.
While a downdraft in the broader market no doubt contributed to the stock's decline, the specific catalyst that sent the e-commerce company lower was a Wall Street analyst who moderated his views regarding Shopify's growth prospects.
Morgan Stanley (MS 0.81%) analyst Keith Weiss lowered his price target on Shopify from $44 to $40 while simultaneously maintaining his equal weight (hold) rating on the stock, according to The Fly. This still suggests an upside of 21% for shareholders compared to Monday's closing price.
The analyst took a deep dive into Shopify's growing fulfillment network, comparing it to that of digital retail giant Amazon (AMZN 0.23%). He previously focused mainly on how the growing ecosystem would boost Shopify's revenue, but this time, he concentrated on the investment necessary to create that infrastructure. After reading the digital tea leaves, Weiss asserted that for Shopify, building out its fulfillment capabilities is "likely just the beginning of a multi-billion dollar investment cycle." He further suggested that this could weigh on the company's profitability for the foreseeable future, rather than adding meaningfully to the bottom line.
Finally, Weiss expressed concern that the company will face a difficult path ahead, considering the "growing competition across Amazon and Shopify offerings as the two platforms' business models increasingly collide."
While his opinion certainly has merit, it's important to put his view in context. Analysts generally take a much narrower focus than the average long-term investor, looking just three to six months down the road -- or, at times, even as far as a year. Understanding this explains why an analyst can be right in the short term, while investors with a longer-term approach can profit based on an opposing view over the coming three to five years -- or longer.
As a Shopify investor, I see the value of the company building out a fulfillment network to serve its growing list of merchants, which will add value to its services and attract the next generation of internet entrepreneurs to its platform. Given Shopify's already sizable lead building out its e-commerce services platform and the high switching costs involved in changing service providers, Shopify is well-positioned to expand its already impressive customer ecosystem, laying a firm foundation for the future.