Top Analyst Boosts Price Target on Shopify Inc (SHOP); Predicts Further Growth Acceleration Down the Road


Shopify Inc (NYSE:SHOP) posted fourth-quarter earnings yesterday that top analyst Colin Sebastian at Baird deems “another strong quarter” from the company thanks to small mid-cap growth that drove beats on both the top and bottom line. In reaction, the analyst reiterates an Outperform rating on shares of SHOP while raising the price target from $48 to $69, which represents a 12% increase from current levels.

Predominantly, robust revenue from both Subscription and Merchant Solutions drove the outclasses. For the fourth quarter, SHOP brought in a 63% year-over-year rise in revenue to $56.4 million, outperforming consensus expectations of $54.8 million. The analyst attributes standout growth to MRR of $18.5 million, which rose $18.5 million thanks to a surge in new merchants joining the platform hitting a 54% year-over-year rise to 375k, a record-high. Meanwhile, Merchant Solutions revenue experienced a 108% year-over-year rise to $74 million, beating consensus of $66.8 million on back of a rise in GMV/merchant as well as in Payments. GMV saw a 94% acceleration to $5.5 billion with segment gross margin expansion to 31.7%. Moreover, the analyst notes management predicts even better margins as its “initiatives gain traction.”

Sebastian opines, “We believe that Shopify’s value proposition for SMBs remains top-of-class, and expect a stable revenue growth trajectory benefiting from increasing Shopify Plus adoption and deepening merchant engagement.”

Anticipating that the “pace of investment [is] likely to accelerate in 2017,” the analyst continues, “Building upon investments in product and headcount increases in 2016, we believe that platform updates, social/marketplace integration, and ongoing cloud computing improvements will reinforce Shopify’s leadership position in the SMB e-commerce market. Additionally, the company plans to ramp up investment in targeted branding and content creation, with significant runway for growth given the still under-indexed online penetration of SMBs.”

Ultimately, “Profitability targets remain intact” and “While guidance reflects a significant ramp in investment, on the call management reiterated its plans to reach operating profitability by 4Q17,” Sebastian concludes.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, top five-star analyst Colin Sebastian is ranked #16 out of 4,460 analysts. Sebastian upholds a 79% success rate and garners 19.5% in his yearly returns. When recommending SHOP, Sebastian gains 102.5% in average profits on the stock.

TipRanks analytics indicate SHOP as a Strong Buy. Based on 6 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on SHOP stock while 1 maintains a Hold. The 12-month average price target stands at $64.30, marking a 6% upside from where the shares last closed.

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