Shopify stock price is ripe for a bearish breakout

The Shopify (NYSE: SHOP) stock price has been in a strong bearish trend in the past few months as investors react to the company’s slow growth. The shares are trading at $353, which is about 80% below the highest level in 2021. Its market cap has fallen from over $210 billion to the current $44 billion.

Fall from grace

Shopify, like other fast-growth tech stocks, has had a remarkable fall from grace in the past few months. The company’s shares have fallen from over $1,766 to the current $353.

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The main reason for this performance is that analysts expect that the company’s growth is slowing down as demand for e-commerce solutions decline.

The firm has seen the number of new merchants slow while the number of buyers has been slowing down as well. In the most recent quarter, the company’s revenue of $1.2 billion was about $36 million lower than what analysts were expecting. Similarly, its earnings per share missed by 45 cents.

During the quarter, its subscription solutions rose by just 8% to $344 million while its merchant solutions revenue rose by 29% to over $858 million. The company also moved further to the logistics business by acquiring Deliverr.

In total, Shopify has done relatively well in the past few years. Its total revenue jumped from over $2.9 billion in 2020 to over $4.6 billion in 2021. Its profits rose from over $319 million to over $2.9 billion. 

Further, Shopify has lagged because of the current inflation pressure that have affected most retail and e-commerce companies. Just last month, companies like Target, Walmart, and Kohls warned about the state of the industry. Since most Shopify merchants are small companies, there is a likelihood that they have been hit harder.

Shopify stock price forecast

There is a likelihood that the Shopify share price will rebound in the long term. On the daily chart, we see that the shares have moved below the 25-day and 50-day moving averages. It has also formed a bearish pennant pattern, which is usually a bearish sign.

While the MACD has formed a bullish divergence, there is a likelihood that the stock will likely have a bearish breakout. If this happens, the next key support level will have a bearish breakout in the near term. If this happens, the next level to watch will be at $300.

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