Shopify Inc (TSX:SHOP) Faces its Biggest Challenge Yet: Facebook (NASDAQ:FB)

Facebook, Inc. (NASDAQ:FB) is making moves to compete directly with Shopify Inc (TSX:SHOP)(NYSE:SHOP). While Shopify stock remains near its all-time highs, here’s why you should be concerned with Facebook’s actions.

| More on:

Shopify (TSX:SHOP)(NYSE:SHOP) is in trouble. Its biggest threat is pure competition.

In March, $30 billion tech giant Square decided to compete directly with Shopify. With more capital and deep expertise in digital payments, Square alone has the potential to disrupt Shopify’s glory days.

Then, news broke that $900 billion behemoth Microsoft was also entering the ring. Microsoft’s corporate vice president of retail and consumer goods said that the company is looking to enter the market “very seriously because our customers are asking us for it.”

As if things couldn’t get any worse, Facebook (NASDAQ:FB) also jumped into the fold. Read on to discover why Facebook could be Shopify’s biggest threat yet.

Say hello to Instagram Checkout

On March 14, Shopify stock fell 4% in a single trading session after news broke that Instagram would introduce its new Checkout feature, allowing users to purchase items directly within the app. Facebook bought Instagram in 2012 for $1 billion.

Previously, merchants simply connected their Instagram and Shopify accounts, forcing purchases to go through Shopify’s platform. Using Instagram Checkout, merchants can cut out Shopify completely. Users will store their payment information in Instagram to make purchasing items within the app easier than ever.

Shopify bulls will likely say, so what? Sure, Instagram was a nice source of income for Shopify, but it’s only one platform. Shopify’s opportunity is certainly much larger than just Instagram.

The problem isn’t necessarily that Shopify will lose out on Instagram purchases. Instead, investors should be worried about what Facebook’s actions mean for the rest of its business.

Shopify is in trouble

Facebook is only the first domino to fall. Over the next 12 months, expect many more tech giants to break ties with Shopify.

The rebellion is already under way.

On March 22, Mailchimp broke up with Shopify after the two companies couldn’t agree on data privacy rules. Today, Shopify users can no longer integrate their Mailchimp accounts with their Shopify marketplaces. That’s a big problem considering Mailchimp is the world’s largest automated marketing platform, with more than 20 million users.

Interestingly, after parting ways with Shopify, Mailchimp agreed to integrate its service with Square. It seems as if other tech giants are staging a coordinated protest against Shopify’s business practices.

The valuation is just too crazy

Today, Shopify’s valuation seems to be pricing in limited competition and zero pricing pressures. With a growing number of better-financed competitors entering the market, it’s unlikely that Shopify won’t be pressured greatly in the months and years to come.

Even compared to other market favorites like Lyft, Shopify appears aggressively valued. Lyft shares currently trade at a less than six times EV to sales. Shopify stock is valued at more than 20 times EV to sales.

Shopify remains a stock market darling to this day, but don’t be surprised if its fortunes change quickly this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Gardner owns shares of Facebook. Tom Gardner owns shares of Facebook and Shopify. The Motley Fool owns shares of Facebook, Shopify, and Shopify. Fool contributor Ryan Vanzo has no position in any stocks mentioned. Shopify is a recommendation of Stock Advisor Canada.

More on Tech Stocks

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

money goes up and down in balance
Tech Stocks

1 “Magnificent 7” Stock I’d Buy Over Nvidia Right Now

Here's why Meta Platforms stock is a better choice for Canadian investors compared to Nvidia in November 2024.

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »