The old adage that says that if a service is free, you yourself are the product may be coming to bear on e-commerce company Shopify Inc. (SHOP). While it's been no secret that Facebook Inc. (FB) has partnered with Shopify to help the Canadian e-commerce platform deliver targeted data to entrepreneurs, recent scrutiny over Facebook's privacy practices might mean a shift in this partnership. A recent report by Citron Research predicts that the issues plaguing Facebook could result in trouble for Shopify's "entrepreneur" program, ultimately bring SHOP stock back to $100. As of this writing, SHOP is trading for more than $136 per share.
According to the Citron report, Goldman Sachs Research has illustrated Facebook's central role in Shopify's marketing strategy. Shopify's "entrepreneurs" are connected to user information via Facebook. However, reports from sources including The Atlantic have suggested that some of these retailers "are legit brands with employees and products," while "others are simply middlemen for Chinese goods, built in bedrooms, and launched with no capital or inventory. All of them have been pulled into existence by the power of Instagram and Facebook ads combined with a suite of e-commerce tools based around Shopify." What's more, these entrepreneur accounts can receive detailed personal information about targeted Facebook users, including everything from travel plans to political views, and more.
Citron's report suggests that the stock price of SHOP is "perched on the halo of increased merchant count," meaning that the more entrepreneurs it has in its program, the more successful the company is. However, "the real Shopify customers, the legitimate brands that operate on the Shopify platform, are already decelerating." Along with all of this, Citron reports that outsiders are beginning to become aware of the illegitimacy of many Shopify entrepreneurs.
Facebook May Push Back
Under fire for a variety of personal information issues, Facebook is likely to restrict access to their valuable base of user information. This means that individuals and businesses operating through the Shopify program will likely have less access to personal information, and Facebook will likely initiate a much more stringent vetting process to determine who receives access to this data. Larger brands are unlikely to be affected, but DIY-style entrepreneurs could suddenly find their access cut off.
Citron suggests that, once Wall Street looks to Shopify as an e-commerce solution that is no longer in "hyper growth mode," it's likely that the stock price will fall. Facebook itself has declined by $20 or so per share since the beginning of the year, largely due to the ongoing scandal regarding data. Shopify began the year at $105 per share and climbed up to $145 on the strength of the apparent massive growth. Can that price hold, though?