Why Shopify Stock Drops 10% Today

What happened

Shares of Shopify (NYSE: SHOP) tumbled in morning trading Wednesday after peers PayPal (NASDAQ: PYPL) announced disappointing results yesterday after the market closed. As of 10:40 a.m. EST, Shopify’s stock was down 9.5% while PayPal had lost nearly a quarter of its value.

So what

Fears of runaway inflation and a recession prompted by the Federal Reserve raising interest rates to curb rising prices weighed on the retail sector after a lackluster Christmas period. PayPal, however, expects a hit to its payments business, which has led it to focus sharply on acquiring new customers to generate more revenue from those it already has.

Image source: Getty Images.

The fintech stock has largely missed Wall Street’s expectations, forecasting that it will only add 15-20 million new active users this year, a third of what it added in 2021, and well below 53 million analysts expected. Additionally, it will no longer try to reach 750 million new monthly active users by 2025, as it previously planned; instead, it will focus on increasing engagement with its existing user pool.

Now what

PayPal’s results dragged down the entire payments industry. Beyond Shopify, To block was down 10% in morning trading, To assert was down nearly 8%, Sofi Technologies and Reached were down 7% each, and square space was down more than 5%.

The financial results could mean headwinds for other players in the space, but PayPal’s goals may have been too aggressive and grandiose. The payments space is still seen as a big growth market, although many companies are vying for a slice of the pie.

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Rich Duprey has no position in the stocks mentioned. The Motley Fool owns and recommends Affirm Holdings, Inc., Block, Inc., PayPal Holdings, Shopify, and Upstart Holdings, Inc. The Motley Fool recommends the following options: $1,140 January 2023 Long Calls on Shopify and Short Calls of $1,160 in January 2023 on Shopify. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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