Here's Why Shopify Stock Jumped Today

31 Aug 2023

Motley Fool

What happened

Shares of e-commerce software provider Shopify (SHOP 10.80%) jumped today after the company announced that it's partnering with its biggest rival: Amazon (AMZN 2.18%). As of 2 p.m. ET, Shopify stock was up almost 10%.

Earlier in 2023, Amazon launched "Buy with Prime" to any U.S. merchant, allowing merchants to provide its customers with the perks of Amazon's membership program. It extended Amazon's reach beyond its own domain to that of these third-party e-commerce websites.

Now the option of Buy with Prime is coming to websites powered by Shopify's software. But according to the press release, Shopify merchants retain control of customer data. And Shopify will still process the payments, which is really the big thing here.

So what

Shopify's merchants aren't required to use Shopify's payment solutions. But payment services have been growing ever since they were launched and are boosting the company's revenue.

To illustrate that growth, only 53% of Shopify's merchandise volume (the dollar value of items sold on its platform) was handled by Shopify's payment services in the second quarter of 2022. But in the most recent quarter, Shopify's payment volume was 58% of merchandise volume.

This is an important revenue driver for Shopify. That's why the market is happy to see the company keep payments as it partners with Amazon in logistics.

Now what

It's funny how quickly sentiment can change. Shopify stock fell earlier this year when Amazon launched Buy with Prime, as analysts believed this would greatly impact Shopify's revenue. But the management team deserves a pat on the back for finding a way to get this partnership done.

This partnership with Amazon makes a ton of sense for Shopify. Earlier this year, Shopify stepped away from logistics, so it doesn't directly compete with Amazon in that capacity anymore. Moreover, Buy with Prime could be a really compelling service for many merchants. Therefore, partnering with Amazon mitigates the risk of these customers switching to Amazon from Shopify altogether.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com and Shopify. The Motley Fool has a disclosure policy.