One of the market's biggest darlings is starting to come under fire. Shopify (NYSE: SHOP) is butting heads with a popular marketing ally, and it also finds itself in the crosshairs of Facebook's (NASDAQ: FB) Instagram as it starts showing some potentially problematic e-commerce ambitions.
Shopify has ruffled feathers before. Two years ago, the Ottawa-based online platform for merchants became a target of Citron Research, which argued that Shopify was a house of cards that would come tumbling down as regulators crack down on aggressive affiliate marketing practices. Citron also believed that the number of merchants on Shopify was too good to be true. Shopify got the last laugh, though, as its shares have nearly doubled since the initial shot was fired.
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There's nothing wrong with buying into a stock that's become the target of a vocal naysayer, especially if shares climb in spite of the negativity. But when other companies can hurt Shopify's business, that's when investors need to start paying attention.
When the knocks start to matter
The first shot came on Tuesday, when Facebook's Instagram announced that it's adding an in-app checkout feature to its platform. The new option makes it easier for users to buy the products they discover on the site.
Instagram is initially rolling out the feature with major brands, and while this isn't Shopify's bread-and-butter niche, it probably won't be long before the feature expands, including to the small- and medium-sized businesses that flock to Shopify for its seamless execution and online integration. Shopify has partnered with Facebook in the past, but the easier it gets to sell on sites without leaving an app, the more tempting it may be for budding merchants to decide they don't need to pay Shopify to grow their e-commerce aspirations.
A couple of days later, Mailchimp took a different kind of shot. The popular email marketing campaign manager announced on Friday that it's asking Shopify to remove Mailchimp integration from its marketplace. Mailchimp argues that an updated terms of service that kicks in on May 12 could negatively affect its business and put its users at risk.
Mailchimp integration makes it easier for Shopify merchants to build out their mailing lists and send out occasional marketing missives. We don't know if this will be a deal-breaker for Shopify users or if one side will flinch in the coming weeks, but it's not a good look either way. Mailchimp's concern that the upcoming tweak to the e-commerce platform's terms raises user privacy and customer data concerns, and that's a direct shot at Shopify's reputation.
The potentially thorny developments come just as Shopify is having no problem cranking out monster growth. Revenue soared 54% in its latest quarter, once again blowing through analysts' and its own expectations. Gross merchandise volume matched the top line's 54% surge, so clearly merchants are making the most of being on Shopify. Revenue growth has been decelerating consistently over the past three years, but it's hard to scoff at 54% top-line bursts. Bulls will want to see how these negative developments weigh on the platform's appeal, but Shopify has a knack for finding ways to rise above when things get dicey.
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