Why Shopify (TSX:SHOP) Stock Fell 4% Yesterday

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Shopify (TSX:SHOP)(NYSE:SHOP) took a pretty significant hit Sept. 8, after news that Amazon (NASDAQ:AMZN) is coming for it. The e-commerce mega-giant announced it’s introducing a point-of-sale system, called Amazon One. The news sent shares of Shopify stock downwards, along with other point-of-sale stocks.

What happened?

Amazon’s new point-of-sale system aims at luring away customers from Shopify stock and others. An internal task force called Project Santos was created last year, designed specifically to go after Shopify and its core business: small merchants. Amazon One was the earlier initiative and allows users to complete online and in-store transactions and is linked to other Amazon services.

So what?

This new initiative is a call to war between the two e-commerce giants. Amazon stock climbed at the news, whereas Shopify stock dropped with the major competitor taking on its clients. Small business sellers exploded during the pandemic, with many flocking to Shopify stock. Now, Amazon stock provides an option for these clients as well.

And this is an insanely big market. Data suggests the point-of-sale software market is currently worth about US$9.26 billion and is expected to reach US$19.56 billion by 2028. And Amazon, given its cash flow, has the ability to create a cheaper option compared to competitors like Shopify stock.

Now what?

So far, all we know is that this point-of-sale system exists. There are no details as of writing about when the project will be launched. But given the history of Amazon stock, investors can be sure it’s likely to be just as good as Shopify stock, and definitely cheaper. This is also all happening while Amazon management rolls out cashierless stores, another way it’s bringing consumption into the future.

Shopify stock, though strong, simply cannot compete with this kind of expansion. The company has been expanding, true, but within this market that it’s managed to latch onto. That being said, it’s doubtful Shopify stock wasn’t aware that an Amazon point-of-sale system was coming. So, perhaps investors will soon learn about further updates from management soon. In fact, the news may provide for a strong jumping-in point while shares drop back to more affordable levels (though they’re still in the four-digit range).

Bottom line

Both of these companies have announced war against the other, but it’s not as clear if there really will be a winner or a loser. Shopify stock seems to have lost this battle for now, but this may be an ongoing war. Investors may be wise to pick both sides of the battlefield.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify.