Business Maverick: Shopify’s 50% Slump Proves That It’s No Amazon

Both companies are seen as bellwethers for the e-commerce sector and they are index heavyweights, too: Shopify is 3.1% of Canada’s benchmark stock index and Amazon.com Inc. is 3.7% of the S&P 500.Shopify provides the software and other services that allow small businesses to sell on their own websites, an increasingly competitive business that skeptics say is becoming commoditized.

“They are two different businesses,” said David Trainer, chief executive officer and founder of research firm New Constructs. “Even with the recent stock price decline, shares remain priced for Shopify to be bigger than Amazon. Shopify remains significantly overvalued.” Trainer has one of two sell ratings on it, according to data compiled by Bloomberg.

The company’s growth, while still impressive, is slowing. In its last earnings report, Ottawa-based Shopify warned that sales growth will be lower in the first quarter of this year. For the year, analysts expect sales to increase 31%, down from 57% last year. That’s not uncommon for a young company that’s growing, of course. But therein lies the problem for the stock: Software providers with rich valuations are one of the market’s most out-of-favor groups. It’s a combination of a retreat from high-valuation stocks because of rising interest rates, skittishness about companies that aren’t very profitable, and slowing growth rates after the pandemic pulled forward demand for some tech services.

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