Shopify (NYSE:SHOP) has been rising recently as anticipation mounts around the company’s approaching stock split. But some experts are concerned about the company’s long-term profitability. A team of equity analysts from Wells Fargo has released a detailed report examining the e-commerce platform’s growth prospects. In short, it found that Shopify’s traffic has been declining even as SHOP stock has risen.
Let’s take a closer look at the report and what it means for Shopify and its investors.
What’s Happening with SHOP Stock
SHOP stock has been on a downward trajectory since before 2022 began. Despite significant turbulence this month, it has traded well overall and risen more than 14% even while investors rushed to sell off assets. Today, SHOP stock shot up 3% as markets opened. Since then, it has been volatile but remains in the green. As of this writing, it is up almost 2.5% even in the face of the Wells Fargo report.
Shopify emerged as a winner of the 2020 Covid-19 pandemic boom. Alongside Zoom (NASDAQ:ZM) and Peloton (NASDAQ:PTON), it rose as consumers adapted to staying indoors. But since the lockdown trades faded, Shopify has struggled to adapt and grow as Americans return to shopping in person.
For Wells Fargo’s team, led by Jeff Cantwell, the company’s problems go even deeper. Even as share prices increased in May, visits to Shopify did not. Wells Fargo noted the platform had seen a 13% decline in visits while unique visitors to the Shopify login page had fallen 5%. As Cantwell noted, this may be an indication that the e-commerce boom has indeed slowed.
These problems may not be entirely company specific, though. The report also noted Apple (NASDAQ:AAPL) has made changes to its app tracking transparency that have negatively affected companies like Shopify. CEO Tobias Lutke recently tweeted about the issue.
Apple going full Russel Conjugation here
I personalize, you track across apps, they invade your privacy. https://t.co/w55sVWEb2q
— tobi lutke (@tobi) June 3, 2022
Cantwell carefully highlighted this in the report:
“We believe it’s worth considering Apple more deeply given the company’s evolving privacy laws, which we think are likely affecting Shopify’s merchant base. Though we don’t know the exact impact, we believe the right way for investors to be thinking about this is Apple’s implementation of ATT will be an ongoing headwind to GMV/revenue growth for SHOP, at the very least in the near term.”
He also warned both Shopify’s revenue estimates and gross merchandise value would likely see a “downward bias” in the year’s second quarter.
What It Means for Shopify
It’s clear Shopify is facing an uncertain industry landscape, and Wall Street hates uncertainty. Some experts, such as InvestorPlace contributor Chris Lau, have argued SHOP stock is due for a turnaround and will yield highly positive returns for investors who bought in on the decline. But research like the recent Wells Fargo report certainly calls the company’s growth prospects into question. Investors expected Shopify’s traffic to dip as Covid-19 restrictions eased, but it is hardly reassuring to see it still falling.
That said, June 28 marks the Shopify stock split and investors will be watching carefully. The company knows splitting its stock may trigger the trading frenzy it needs to rise to the top again. If SHOP stock can make a comeback in the face of a damning report, it can rally after splitting.
On the date of publication, Samuel O’Brient 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.
