Things are not looking good for Canadian e-commerce company Shopify (NYSE:SHOP) stock.
A major casualty of the downturn in stocks that thrived during the global pandemic is that SHOP stock has fallen 75% this year, bringing its decline over the past six months to 76%.
At its current price of $317.42 a share, Shopify’s stock is nearly 80% below its all-time high of $1,762.92 a share reached last November before the market turned southward.
As brick-and-mortar retailers reopen for in-person shopping, it remains to be seen if Shopify’s focus on helping small and medium-sized businesses run their operations online can recover as we put the global pandemic behind us.
| SHOP | Shopify | $317.42 |
Shareholder Vote & Stock Split
With its stock under pressure, Shopify Chief Executive Officer (CEO) Tobi Lutke has moved to strengthen his control over the e-commerce company he co-founded in 2006. During a special meeting held on June 7, Shopify shareholders voted in favor of a proposal to create a “founder share” that effectively gives Lutke 40% of the voting rights at the company.
Shareholders voted to grant Lutke the enhanced voting rights despite several advisory firms campaigning against the move. Glass Lewis & Co. and Institutional Shareholder Services each urged investors to reject the proposal, while the California Public Employees’ Retirement System said that it would vote against giving Lutke any more power over Shopify.
For its part, Shopify argued that the proposal would benefit shareholders by ensuring Lutke maintains an active role at the Ottawa, Ontario-based company. The new voting powers will also enable Lutke to steer the company in whatever direction he sees fit going forward.
However, critics claim that it is dangerous to give so much power to one individual, especially with the business and stock struggling. In addition to voting on the enhanced powers for the CEO, shareholders also approved a 10-for-1 split of SHOP stock to be executed later this year. The stock split, which would bring the share price down to about $39 at current levels, is viewed largely as a cosmetic procedure that is unlikely to improve the company or stock’s fortunes.
Slowing Growth & Increasing Competition
SHOP stock has been tanking since last fall on concerns about the company’s slowing growth coming out of the pandemic and as the company faces increasing competition from intimidating competitors such as Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).
Indeed, the company’s latest earnings were troubling. On May 5, Shopify reported first-quarter earnings of $0.20 a share, compared with a profit of $2.01 a share in the year earlier period. The earnings were also well below the consensus forecast of $0.77 a share on Wall Street.
Revenue in Q1 rose 22% to $1.2 billion, while gross merchandise volumes rose 16% to $43.2 billion but missed Wall Street’s forecasts of $45.4 billion. The earnings led to an acceleration in the selloff of Shopify’s stock.
Of course, the company is doing what it can to try and recover, announcing on the same day as its earnings that it will buy U.S.-based logistics firm Deliverr in a cash-and-stock deal valued at $2.1 billion. The company said the acquisition will help it to mitigate supply chain issues that have hobbled the global e-commerce sector.
Shopify has also announced plans to set up new warehouses in the U.S. designed to deliver in two days or less and widen its delivery network to better compete with Amazon and other rivals. Additionally, Lutke doubled down on his commitment to Shopify, announcing on May 11 that he had bought $10 million worth of additional SHOP stock.
Unfortunately, none of the moves by the company — from the Deliverr acquisition to the stock split — have impressed investors enough to stop the slide in SHOP stock. Analysts say the main issue facing Shopify is that consumer behavior has changed sharply and quickly coming out of the pandemic, as has the spending intentions on the part of small and medium-sized companies. The slowdown in Shopify’s business might be irreversible, say some analysts who cover the e-commerce sector.
Do Not Buy SHOP Stock
Shopify is emblematic of the type of technology company that flew high during the pandemic rally of 2020 and early 2021 only to crash this year as the market turns on high inflation and the interest rates needed to cool it off.
However, the Canadian e-commerce company’s problems run deeper than the current market churn. Shopify faces a serious slowdown in growth and loss of customers, along with rising competition and a global economy that could fall into recession. The company’s scattershot approach to fixing these problems seems to only be making its situation worse.
And while the company’s share price has fallen steeply in recent months, there’s no indication it has reached a bottom. It may have further to fall. For all these reasons, investors should avoid Shopify. SHOP stock is not a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.