Shopify Inc (US) (SHOP): 4Q Customer Channel Checks Are Looking Good; Roth Capital Boosts Price Target

Roth Capital's Darren Aftahi now angles for 14% in return potential for SHOP stock ahead of Thursday's quarterly print.


Shopify Inc (US) (NYSE:SHOP) has one bull dishing out an extra confident fourth quarter earnings preview. As the Canadian e-commerce platform gets set to deliver results Thursday morning before the bell tolls, the analyst is calling for an outclass along with a “healthy” guide for 2018.

Roth Capital analyst Darren Aftahi notes that with his 2018 sales forecast already hovering roughly 2.8% ahead of the Street and channel checks turning up “positive” with the consumer player’s customers, he is upbeat on SHOP’s performance come Thursday.

As such, the analyst reiterates a Buy rating on SHOP stock while bumping up the price target from $127 to $144, which implies a 14% upside from current levels. (To watch Aftahi’s track record, click here)

“We look for increased penetration on Plus and shipping products as benefitting MRR and GM’s (although a seasonally weaker GM Q for SHOP),” predicts Aftahi.

For the fourth quarter, the analyst angles for around $207.2 million in sales; $3.6 million in non-GAAP operating income; and $0.05 in non-GAAP EPS. Even though these estimates sit “moderately” under the Street’s expectations of approximately $209.3 million in sales; $4.0 million in non-GAAP operating income; and $0.05 in non-GAAP EPS, the analyst is nonetheless increasingly bullish on the stock. For context, Afthahi’s sales projection hits around the midpoint of SHOP’s own guide ranging between around $206 to $208 million, and consensus hit “slightly above.”

Aftahi predicts, “We anticipate merchant solutions growth of ~60% y/y, slowing from ~108% growth a year ago and ~79% growth seen in 3Q17, however, we believe growth rates of ~60% should remain the baseline going into FY18. For subscription solutions, we expect growth of ~57% y/y, a slight slowdown from ~63% growth a year ago as overall revenue is expected to grow ~59% y/y, still impressive despite comparables of ~85%+ in 4Q16. We model for gross margins to improve ~340bps y/y as subscription margins improve ~200bps y/y and merchant also improves ~520bps y/y, respectively.”

Additionally, the analyst anticipates around $3.6 million in non-GAAP operating income, which would mark the company’s second quarter in a row of positive NG operating income. The company stands to take advantage from declining operating expense growth along with better margins and a growing revenue base, writes the analyst. Meanwhile, Aftahi bets on around $9 million in adjusted EBITDA for the quarter. Gross Merchandise Value (GMV) for the quarter by the analyst’s calculation could hit a roughly 50% rise year-over-year to $8.3 billion and merchant growth could soar around 53% year-over-year.

On a final bullish note, “We expect Shopify Capital to continue to be a highlight in the quarter, as we anticipate cash advances of ~$47.6M, growing ~8% q/q and SHOP international revenue of ~22%,” Aftahi surmises, also calling for shipping penetration in the U.S. as well as Canada to see an upturn for the quarter.

TipRanks points to cautiously optimistic sentiment when it comes to Shopify’s prospects on Wall Street. Out of 7 analysts polled in the last 3 months, 5 are bullish on Shopify stock while 2 are hedging their bets on the sidelines. Is the stock overvalued or undervalued based on these analysts’ expectations? Consider that the 12-month average price target of $123.86 suggests close to 2% in loss potential from where the stock is currently trading.