Shopify Inc (NYSE:SHOP) shares continue to slip in the market today despite a first quarter beat delivered yesterday. Were investors too eager for an even bigger beat, and was the size of the revenue outperformance and boosted guide just not enough to temper Wall Street’s monster expectations? One of Wall Street’s best performing analysts counters that there are “no worries here,” highlighting that this is “a dip to BUY.”
Top analyst David Hynes at Canaccord sings the Canadian e-commerce platform’s praises, taking note of “excellent growth” and simply a “conservative guide” that does not detract from “one of the best open-ended growth stories in software.” As far as Hynes surveys the print, “there was nothing in this quarter that changed our view.”
In reaction, the analyst maintains a Buy rating on SHOP stock with a $155 price target, which implies a 24% upside from current levels.
For the first quarter, SHOP posted a 68% year-over-year jump in revenue to $214.3 million, outperforming Hynes’ estimate by $10.3 million. The company more or less hit breakeven on a non-GAAP operating income basis, far ahead of the analyst’s projection calling for a loss of ($6.0 million). Yet, the company’s free cash flow loss of ($7.3 million) underwhelmed the analyst’s $2.6 million forecasts, which Hynes attributes “entirely” to rapid-fire growth in merchant cash advanced; a “good use of capital.” MRR base subscriptions of $32.5 million rose 57%, outperforming the analyst’s expectations by $1.0 million and GMV of $8.0 billion flew far over the analyst’s $7.6 billion projection, marking a 64% year-over-year surge.
Ultimately, “With 68% revenue growth and essentially breakeven operating income in Q1, Shopify is posting growth + margin totals that rival firms like Atlassian, ServiceNow, Adobe and Veeva. This is certainly great company, but we’d be remiss if we didn’t point out a difference – each of these other firms is generating FCF margins north of 25%. Now that’s not necessarily a knock on SHOP, as the firm is proving that it can deliver outstanding growth with its spend, but what it does mean in our view is that this stock is going to be more susceptible to swings in investor sentiment. Inasmuch as growth is still en vogue, we suspect that SHOP will recover much of today’s sell-off in relative short order, as there was little in the quarter that gives us pause about the direction of the business,” Hynes contends, arguing that these kinds of “down days” should be used to lift exposure in the stock. Bottom line, “SHOP should be a core growth holding,” argues the analyst.
David Hynes has a very good TipRanks score with a 75% success rate and a high ranking of #46 out of 4,773 analysts. Hynes yields 30.5% in his annual returns.
TipRanks reveals SHOP has generated some positivity on the Street, according to analytics. Out of 15 analysts polled in the last 3 months, 9 rate a Buy on SHOP stock while 6 maintain a Hold. The 12-month average price target stands at $144.79, marking 16% in upside potential from where the stock is currently trading.