Shopify (NYSE: SHOP) stock was among the big losers of the session on Thursday. Shares of the e-commerce software company fell in response to the Federal Reserve's 75-basis-point hike to the benchmark federal funds rate Wednesday, as well as commentary about future interest rate hikes.
Though there was no company-specific news out on Shopify Thursday, tightening monetary policy and concerns about a potential recession were enough to drive the stock down 6.5% to a new 52-week low.
Like most e-commerce stocks, Shopify has been hit hard this year, both due to investors' intensifying concerns that a recession is coming and the difficult growth comparisons it faces against 2021, when COVID-19 was still causing large numbers of consumers to avoid brick-and-mortar retailers.
As a growth stock that has been mostly unprofitable over its history, Shopify is also particularly vulnerable to rising interest rates, which are expected to cool off economic growth and make its future earnings less valuable by increasing the discount rate in financial models. Fed Chair Jerome Powell said Wednesday that the central bank would continue to raise rates to bring inflation under control, even if that hurts the economy. That's a clear warning for companies like Shopify that are heavily exposed to the consumer discretionary sector. Most of the purchases from businesses that use Shopify's platform are discretionary in nature.
Shopify put up monster growth numbers for much of its history, and prior to 2022, it was one of the biggest winners on the market. But that's changed.
The company was already struggling before Thursday's slide. The stock plunged this year due to slowing revenue growth, competition from Amazon's new Buy with Prime program, and more recently, the loss of two top executives. Investors already seemed skeptical that the company would be able to reaccelerate its revenue growth, and a recession would only present another challenge.
While Shopify stock still looks like a good bet over the long term, its recovery may take longer than bulls hope.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon and Shopify. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
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