Shopify Falls as Instagram Checkout to Create Payments Pinch

(Bloomberg) -- Shopify Inc., the online platform for merchants, fell the most in two weeks after RBC said the company could be hurt by Facebook Inc.’s launch of Instagram Checkout, which allows consumers to pay for items without leaving the social platform.

The new Instagram service could take market share from Ottawa-based Shopify, RBC analyst Ross MacMillan said. That’s because currently, merchants can link to their Shopify channel on Instagram, which brings customers to the site and generates payments revenue.

“Checkout on Instagram circumvents this and provides a new checkout mechanism for a brand separate from the Shopify platform,” MacMillan said in a research note on Tuesday, adding that Shopify’s gross payments volume from Instagram purchases are “very small today.”

Some of the first brands using the new Instagram service, which was launched in a closed beta, include Shopify merchants such as newly dubbed billionaire Kylie Jenner’s cosmetics company and the apparel company Outdoor Voices.

There could be positives, though, according to Jefferies analyst Samad Samana, who rates Shopify shares a hold. He said improving the Instagram and online shopping experience could result in more e-commerce activity and give a lift to Shopify, too. But, ``it’s possible, though unlikely, some smaller merchants may choose to start selling directly on Instagram rather than spending the time and effort to build an online storefront'' through Shopify.

Shopify pared earlier losses and closed the day down 1.8 percent at $202.09, the lowest since Friday. Overall this year, the shares have gained 46 percent.

The new Instagram service, created by PayPal Inc. and Facebook, is the latest partnership in the payments industry amid a flutter of deals, MoffettNathanson’s Lisa Ellis noted. The companies are “natural partners, and, arguably need each other now more than ever,” she said.

PayPal needs new users, and the partnership will give it access to 40 million of them. Meanwhile, she said Facebook ``is in need of a new narrative -- and e-commerce may well be it,'' as the partnership could be the next step in becoming a world-leading online retailer.

©2019 Bloomberg L.P.