Few stocks have been hit as hard in the sell-off this year as Shopify (SHOP -0.05%).

Shares of the e-commerce software company have plunged about 85% from their peak nearly a year ago. The one-time market darling faced slowing growth due to difficult comparisons with 2021 and from consumer spending turning away from e-commerce. It's also made a number of changes in its executive suite, issued a surprise stock split, and seen its profits from a year ago turn into losses.

However, there's another reason why Shopify stock has taken a pounding this year. New competition from Amazon (AMZN -1.24%) in the form of Buy with Prime spooked investors as some fear that the e-commerce giant could muscle Shopify out of a valuable revenue stream.

What is Buy with Prime?

Traditionally, Amazon Prime's most popular benefit is that it gives Prime members free two-day shipping on any orders from Amazon that carry the Prime logo.

Now, Amazon is taking that benefit and offering it to third-party merchants on their own websites. The move seems designed to undercut Shopify more than any other competitor, taking away payments, the software company's most valuable revenue stream. Shopify has more than 1.75 million merchants on its platform, and Buy with Prime could eventually become available for the majority of them. Shopify CEO Tobi Lütke welcomed Buy with Prime as a way of expanding the e-commerce ecosystem, but in September he said that signing up for the shipping program was a violation of Shopify's terms of service.

Shopify stock plunged when Amazon announced the move in April, saying at the time it was opening membership up by invitation only, and there's still a wait list to join the service today. In September, Amazon said it was adding marketing tools to help Buy with Prime members drive traffic, including advertising on Amazon, Facebook, and Instagram.

It's unclear how many sellers Amazon has signed up for Buy with Prime, but the program is currently only open to sellers who use Amazon fulfillment, meaning they already have a relationship with Amazon. 

Recruiting merchants who don't already work with Amazon will likely be more difficult, but there's already a sign that the program isn't living up to the expectations that it would crush Shopify.

Is this really a Shopify killer?

In September, Bloomberg reported that Amazon was shuttering or canceling plans for 42 warehouses, and delaying the opening of 21 more.

The news is another indicator that Amazon's sales growth isn't meeting the company's own forecasts. Amazon also announced a hiring freeze in its corporate retail division, and its decision to host a second Prime Day seemed to be driven by the need to get rid of excess inventory ahead of the holiday season. 

At this point, Shopify isn't a small player in the e-commerce sector. The company now has more than $200 billion in annual gross merchandise volume (GMV) on its platform, making it one of the biggest retail players in the world. By comparison, Amazon's GMV topped $600 billion last year.

Amazon might be triple the size of Shopify in sales volume, but it will still need a significant increase in capacity if it's going to make a dent in Shopify's sales. The decision to close or delay new warehouses seems to indicate that Buy with Prime isn't experiencing the kind of adoption that would damage Shopify. Alternatively, Buy with Prime may be difficult to implement, meaning it won't become available to the universe of Shopify sellers anytime soon.

What it means for Shopify investors

Shopify management has called for the headwinds it's faced to continue in the second half of the year, but over the longer term, e-commerce should resume its historical growth course, which had been around 15% annual growth in the U.S.

If Shopify can beat expectations in its third-quarter earnings report, the stock could get a much-needed boost. Analysts expect revenue to grow 16% to $1.3 billion and see an adjusted per-share loss of $0.11 when the company reports on Oct. 27.

With the stock down nearly 85% from its peak and the Buy with Prime threat looking overblown, now could be a golden opportunity to buy Shopify stock.