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Shopify Shares Fall on Downgrade Due to Near-Term Challenges

Shopify retracted its 2020 guidance last week, an indication of weakening demand trends.
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Shares of e-commerce platform Shopify  (SHOP)  were falling Tuesday after analysts at Raymond James downgraded the stock from outperform to market perform on concerns about near-term headwinds. 

The analysts are worried that the near-term challenges that forced Shopify to withdraw its 2020 financial guidance will persist, despite the muted investor reaction to last week's announcements. 

"This dynamic does not seem to be reflected in either estimates or shares, given that 1) two-thirds of analysts didn't cut numbers post the withdrawal of 2020 guidance; and 2) the stock is effectively unchanged following the announcement," analyst Brian Peterson wrote. 

The stock has fallen 34% from its recent peak, including a 10% decline on Thursday. But despite that pull back, shares are now "essentially back to prior levels," Peterson wrote, while the 1% year to date decline is still better than the rest of Raymond James' coverage universe. Shopify shares were down 2.8% to $381.67 in morning trading on Tuesday.

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Despite last week's negative news, only one-third of analysts tracked by FactSet changed forward estimates for the company, and three analysts even raised their 2020 numbers.

"With a number of retail closures and shelter-in-place guidelines from various U.S. states, e-commerce has become [essential] for retailers/brands, a dynamic that should benefit Shopify longer-term," Peterson wrote.

"That said, we suspect that the near-term ramifications for Shopify may be more mixed, largely given the products sold by its merchant base. Shopify doesn't disclose its [gross margin value] mix by product, although our research suggests significant exposure to highly discretionary categories like apparel and high-end cosmetics."