Analyst Ross MacMillan Cautious on Shopify Inc (US) (SHOP) Ahead of Q4 Showcase

Though RBC Capital's Ross MacMillan bets on a 4Q earnings outclass come Thursday, SHOP's valuation keeps him playing it safe.


Shopify Inc (US) (NYSE:SHOP) has an easy fourth quarter earnings beat ahead this Thursday morning, writes one analyst, who notes that the guide is advantageously “conservative” and the e-commerce environment stands robust.

RBC Capital analyst Ross MacMillan nonetheless sees risk-reward as “balanced” against current trading levels.

As such, the analyst bets on “moderating beats on revenues” along with stellar gross profit gains ahead for the company- but remains sidelined on valuation.

Though the analyst predicts upside to 2018 forecasts, he reiterates a Sector Perform rating on SHOP stock with a $103 price target, which implies a close to 15% downside from current levels. (To watch MacMillan’s track record, click here)

“We expect SHOP to beat 4Q17 revenue estimates given the strong e-commerce backdrop and a number of areas of conservatism in the guidance (including implied GMV/ average merchant, implied net new merchant adds and the implied take rate). We also expect SHOP to beat on gross profits given underlying improvement in merchant solutions GMs driven by the impact from Plus pricing (see our analysis from late October here), Capital and to a lesser degree Shipping,” underscores MacMillan.

Though the analyst surmises that Shopify’s net merchant growth has ideal odds to soar past his 2018 expectations, the rate of growth keeps him cautious: “the rate of growth will slow given the high volume of low end merchants acquired in CY17 that we think will exhibit very high year one attrition.”

On a final note, “On gross margins, we see good scope for these to continue to increase on the back of Plus pricing, Capital and to a lesser degree shipping. However, we think revenue upside remains more important than profit upside at current valuation levels,” MacMillan believes, likewise observing “mixed trends” from tracking third party traffic data sources.

TipRanks highlights a strong bullish consensus backing this Canadian e-commerce platform’s opportunity. Based on 5 analysts polled in the last 3 months, 4 rate a Buy on SHOP stock while only 1 maintains a Hold. The 12-month average price target translates to $121.40, marking a nearly 2% in upside potential from where the stock is currently trading.