The Shopify partnership with Walmart is positive and indicates the e-commerce company’s “growing dominance,” but it isn’t the sole reason why the company’s stock surged on Monday, analysts say.
At the market close Monday, Shopify’s (SHOP) stock was up 7.32 per cent to US $796.91. On June 15, the e-commerce giant announced the partnership, allowing U.S. merchants to sell products on Walmart’s Shopify-powered marketplace, which is visited by more than 120 million Americans every month.
“This [partnership] is another indication of Shopify’s growing dominance,” said Suthan Sukumar, an analyst at Eight Capital, in an interview. “It’s another validation for their business. And enhances the value proposition of the Shopify platform.”
Sukumar said that the platform’s focus, especially during the COVID-19 pandemic, has been to ensure its merchants have access to the most “comprehensive tools and capabilities.”
“This is just another extension on that strategy,” he said, adding that while the announcement isn’t “thrilling” it shows that the company has the potential to outperform financial expectations in quarters to come.
Tom Forte, an analyst at D.A. Davidson & Co., said in an interview that this deal primarily benefits Walmart so it can expand its inventory.
He added that the announcement wasn’t the sole reason for Shopify’s stocks to soar.
“The strong moving shares of Shopify was a combination of the headlines of Shopify working with Walmart, and then the fact that they have been upgrading. This upgrade was on the notion that they’re incredibly well-positioned to leverage this increase in e-commerce sales,” he said.
According to Adobe Analytics' Digital Economy Index, e-commerce sales during COVID-19 (April to May) were higher than what retailers saw during the 2019 holiday season (November to December). Consumers spent US $153 billion online in the last two months, which Adobe says is 7 per cent higher than the US $142.5 billion spent online during the holiday season.
“The strength we saw in April continued in May. I think then that creates fertile soil for Shopify to do amazingly well,” he said.
Shopify also indicated during its Reunite conference held in late May that there was a 71 per cent decline in brick and mortar sales, but the company was able to recapture 94 per cent of lost sales through e-commerce.
“While I worry about the merchants’ ability to pay for Shopify services, I know that merchants need Shopify more than they've ever needed Shopify,” Forte said.
The move to partner with Walmart also gives the retail giant the opportunity to compete directly with Amazon.
“It’s a competitive move by Walmart. And I do think Amazon has created a window of opportunity for competition,” Forte said.
When the pandemic began, Amazon announced it would focus efforts on essential products.
“You went to Amazon to get toner, and instead of being able to get it in two days, [Amazon] was saying you would get it in two months. I think when Amazon leaned into essentials it created an opportunity for either e-commerce players to get the first transaction from a consumer,” he said.
Sukumar added that Shopify is merely the platform that would power Walmart, adding that Walmart is now going to get more competitive relative to Amazon.