In a research report issued Wednesday, Baird’s top analyst Colin Sebastian rebuked Citron for its short report on Shopify Inc (US) (NYSE:SHOP), and reiterated his Outperform rating and price target of $110 on the e-commerce platform’s stock. The analyst views the report as “significantly overstating the impact of “millionaire” ads as a driver of Shopify’s business.”
As a reminder, Citron criticized Shopify’s marketing model and set a price target of $60, which implies a potential downside of nearly 50% for the stock. While Sebastian views the short call as a new overhang, he believes the decline in Shopify’s share price represents a buying opportunity for investors.
Sebastian commented, “Scope of short thesis appears very narrow. First, we view the comparison with Herbalife as clearly misleading, as Shopify is not a multi-level marketing company. Shopify is a technology company that sells a SaaS e-commerce platform focused on SMBs. Second, and more to the point, our survey of Shopify ads today indicate very few (1 out of 20) contain the word millionaire, whereas the vast majority of the marketing campaigns are focused on easy online store set-up, building a brand, selling on Facebook, or creating an online shop.”
“Third, the short call on valuation is based on the long-standing view among some investors that the non-subscription part of Shopify’s revenues (Merchant Solutions) deserves a lower multiple, since it is largely volume-based commissions for payments and other “back office” functionality rather than “core” e-commerce functionality. We agree that this part of Shopify could be valued differently, however, we would note that both segments of the business are somewhat interdependent, and represent a fixed and variable component to revenues for a more complete end-to-end platform offering that align Shopify’s interests and incentives with their customers.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Colin Sebastian has a yearly average return of 25.1% and a 78% success rate. Sebastian has a 103.1% average return when recommending SHOP, and is ranked #16 out of 4691 analysts.
Wall Street is torn when it comes to whether to sing this e-commerce firm’s praises or assess with an apprehensive gaze, as according to TipRanks, out of 16 analysts polled in the last 3 months, half are bullish on Shopify stock while half remain sidelined. With a slight upside potential, the stock’s consensus target price stands at $107.91.