Market May Be Overreacting To Shopify's Amazon Integration

• Shopify Inc SHOP shares have appreciated 39 percent year-to-date, despite remaining below $30 for over the month, before breaching this mark on September 17.
• Pacific Crest’s Brendan Barnicle maintained a Sector Weight rating on the company.
• There is lack of clarity into the potential revenue impact of the company being chosen as the preferred migration partner for Amazon Webstore merchants, Barnicle said.

On September 17, Shopify announced that it had been chosen by Amazon.com, Inc. AMZN for migration of Amazon Webstores merchants. This “validates Shopify's solution,” analyst Brendan Barnicle wrote.

In March, Amazon had announced its plans to discontinue this service. Barnicle believes that the Amazon Webstore opportunity is “modest.”

Pacific Crest noted, “ChannelAdvisor's Chairman Scot Wingo indicated that it had about 100 merchants using Amazon Webstores, which we estimate to represent low single digits of its more than 2,900 merchants as of the end of 2Q15.”

Barnicle expects only “modest adoption” of Amazon's login and payments solutions in view of competition. ECommerce merchants have hesitated to partner with or share data with Amazon for off-Amazon transactions, as is evident by the “limited success” of Amazon's Webstore business. Similarly, there has been limited adoption of Amazon payments by e-commerce merchants.

“While Shopify now offers Amazon's login and payments solutions, it is positive because it will increase options for merchants. However, it is unclear how many merchants will adopt solutions from their biggest competitor,” the Pacific Crest report added.

Barnicle said that there seems to be “more upside potential” in the announcement of Shopify's partnership with Facebook Inc FB on the Shop section, “since social commerce could be TAM expanding and create new use cases, especially for mobile.”