What happened
Shopify (SHOP 4.78%) shareholders lost ground to a falling market on Friday. The e-commerce platform stock was down 10% by 3 p.m. ET, compared to a 2.9% slump in the wider market. That decline added to big short-term losses in the stock, which is down over 80% so far in 2022.
Friday's dip came as investors withdrew some of the confidence that they had developed about an impending rebound ahead for the business.
So what
Shopify joined other e-commerce stocks in the strong rally earlier in the week. Shares rose over 15% on Thursday, for example, as Wall Street became less pessimistic about a recession developing over the next few months.
Shopify's stock tends to see amplified moves -- in both directions -- when sentiment shifts about the wider economy. Its business will be sensitive to consumer-spending patterns, after all, and so a stable selling environment might mean a quick return to profitability for the business.
But attitudes shifted the other way on Friday as the Nasdaq index, home to many growth-focused tech stocks, fell nearly 4%. It is no surprise that Shopify would see bigger losses on such a significant down day for its industry.
Now what
Shopify's long-term outlook is positive thanks to its dominant position in the e-commerce world. Yet it is also clear that the company will be going through a period of unusually weak earnings results thanks to a demand slowdown that surprised the management team. As a result, shareholders can expect to see further volatility ahead for this stock.
On positive market days, as we saw earlier in the week, Shopify can see significant gains. But its weak financial results in the past few quarters also leave it exposed to big declines when investor sentiment sours.
That doesn't mean the bullish thesis is broken. But it does mean shareholders must be willing to accept turbulence while holding this stock.
