Shares of Shopify (NYSE:SHOP) have been on a multiyear tear. As digital retail continues to expand, the e-commerce company’s cloud-based store management solutions have reaped the benefits, with online and traditional retailers alike flocking to the service. How did that happen? It’s all about increasing the value of merchandise purchased (GMV) in the Shopify ecosystem right now.
With global ecommerce estimated to expand from $2.3 trillion exiting CY17 to $4.9T in CY21E, Rosenblatt analyst Mark Zgutowicz sees a relatively low hurdle rate for Shopify to drive substantial global GMV gains. Specifically, the analyst models ~$26B GMV growth outside the US thru CY21E, which represents just 0.4% OUS share expansion from 2017. Zgutowicz believes that while cognizant of multiple execution risks involved with a global expansion strategy (Shopify’s increasing global brand recognition and its 2+ year tried and tested 3- prong template for Plus/non-Plus expansion), Shopify is on solid ground to begin meaningful, albeit deliberate, global growth expansion.
Furthermore, Zgutowicz sees Merchant Solutions (MS) gross margin reaching 39%+ in CY20E, led by a 700 bps contribution from shipping and capital solutions. While payments processing costs have been the heavy on MS margin, the analyst believes both the revenue and SaaS-like margin strength behind shipping and capital is underappreciated. Zgutowicz expects further upward margin pressure beyond CY20 as higher payment volumes unlock more attractive economics with Shopify’s outside payment processors.
As such, Zgutowicz initiates coverage on Shopify shares, with a Buy rating and price target of $188, which implies an upside of 29% from current levels. (To watch Zgutowicz’s stock picks, click here)
This e-commerce player certainly has the Street divided. Based on 11 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on Shopify stock, while 6 recommend a Hold. The 12-month average price target stands at $159.11, marking a nearly 10% upside from where the stock is currently trading. (See SHOP price targets and analyst ratings on TipRanks.)