Shopify Faces Headwinds as Tariffs Threaten Dropshipping Core

• Shopify shares are down over 20% year-to-date, pressured by global tariff threats and weakening e-commerce sentiment.
• Dropshipping, a business model heavily reliant on Shopify’s platform, is directly hit by new U.S. tariffs targeting small China-origin shipments.
• Valuation remains rich at over 50x trailing earnings, leaving Shopify exposed to further downside despite strong revenue growth.

Trade War Tensions Hit Core Shopify Users

Shopify (TSX:SHOP), once the go-to platform for scrappy digital entrepreneurs, is increasingly vulnerable to geopolitical shocks. Its core user base—small and medium-sized dropshipping businesses—depends on seamless, low-cost trade between China and Western markets. But with the U.S. set to eliminate the de minimis exemption on May 2, that frictionless flow is ending.

Dropshippers who relied on the loophole allowing duty-free imports under $800 now face tariffs of up to 30% or $50 per item. For many Shopify sellers with thin margins, that’s going to cripple their operations. Micro e-commerce operators have already reported revenue plunges of 30% or more, product delays at ports, and rising refund rates. Shopify doesn’t directly participate in logistics, but it does rely on the success of these merchants for subscription and merchant service revenue.

Shopify Reported Strong Q4 Revenue, but Challenges Lay Ahead

Despite a 31% revenue gain last quarter and guidance for mid-20% growth in 2025, Shopify is entering stormy waters. The stock trades at over 50x trailing earnings—expensive by most standards—especially if a slowdown materializes in the dropshipping economy, which has historically driven much of its platform adoption.

The company’s technicals also signal trouble: its 20-day moving average recently fell below its 200-day, a bearish crossover that suggests momentum could continue to weaken.

The Stock’s High Valuation Demands Perfection

With Shopify already pricing in strong growth, any sign of softness in consumer spending, global trade, or fulfillment efficiency could accelerate the decline. U.S.-China trade tensions add uncertainty, particularly for merchants that lack diversified sourcing or customer bases. While Shopify has larger clients and enterprise ambitions, it remains tethered to the long tail of small entrepreneurs—many of whom now face existential threats.

For long-term investors willing to bet on the resilience of digital commerce, Shopify could offer value if it drops further. But for now, the risk-reward looks unfavourable. Growth investors should be cautious, and those with lower risk tolerance may prefer to stay on the sidelines until trade pressures subside.