Shopify (SHOP) came through with what seem to be solid fourth-quarter results on the surface. Revenue and earnings exceeded expectations in Tuesday morning’s fourth-quarter report. However, there’s always more to every earnings beat, and the fact that the stock moved lower is proof that the market wasn’t impressed.
Specifically, the digital commerce platform maker posted Q4 earnings, with sales of $343.86 million (a year over year increase of 54.3%) that beat analyst estimates of $327.63 million and were above the high end of guidance. However, while CY19 revenue guidance of $1.46-$1.48 billion came in line with consensus estimates, the adjusted operating income is expected in the range of $10-$20 million, falling short of the $57 million analysts collectively were expecting.
That said, Canaccord’s top analyst David Hynes remains bullish on SHOP stock, reiterating a Buy rating and raising the price target to $190 (from $175), which represents a potential upside of 12% from where the stock is currently trading.
Hynes commented, “Shopify reported another stellar growth quarter and year, but the firm’s initial guide for C2019 suggests that this year will again be heavy on investments. This is not entirely surprising, and it’s one of the risks that we outlined in our preview. However, truth be told, with Shopify set to approach $1.5B in revenue this year, we’d expect the business to be running at better than 2% operating margins. We don’t think this is a sign that there’s anything structurally flawed in the model; instead, it’s more that we’ve never seen a cloud software business at this scale growing this fast. If anything, the continued investment points to the opportunity ahead – said another way, we view the spend as offensive, not defensive, which is a good thing. The issue with SHOP as an investment is that with a lack of underlying profits today, the stock is going to be overly susceptible to swings in investor sentiment.”
“For now, growth continues to be in favor. As we said in our preview, we think Shopify is poised to scale to $5B+ in revenue over the next 5-6 years. If that’s the case, even if sales multiples gradually compress, there’s a path for this stock to double over the next half decade. So, let’s see where SHOP settles, and then we’d suggest that long-term growth investors use any weakness to add to positions,” the analyst continued.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst David Hynes has a yearly average return of 30.4% and a 74% success rate. Hynes has a 26.7% average return when recommending SHOP, and is ranked #31 out of 5146 analysts.
Most of the Street remains unfazed by the weak operating income guidance, supporting Hynes’ vote of confidence. Out of 11 analysts polled by TipRanks in the last 3 months, 8 are bullish on Shopify stock while 3 remain sidelined. With a slight upside potential, the stock’s consensus target price stands at $178. (See SHOP’s price targets and analyst ratings on TipRanks)