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Shopify (SHOP) Stock May Be Falling, But This Top Analyst Remains Bullish

Baird's Colin Sebastian sees a slew of positives in Shop's first quarter earnings beat of the year, where Merchant Solutions hit a home run.


Is the Street just a little too greedy? After all, Shopify Inc (NYSE:SHOP) managed to beat expectations, both on the first quarter of 2018 as well as on the guide for the second quarter. Yet, shares are diving 8% today, because the revenue outclass and revised outlook simply were not substantial enough to leave the Street dazzled.

Yet, as far as top analyst Colin Sebastian at Baird is concerned, the quarterly print’s beat matched up with SHOP’s latest performances, and these results keep him upbeat. Keep in mind, this marks one more quarter in SHOP’s corner bearing out the Street, upside gains mainly riding on back of strength in Merchant Solutions.

In reaction, the analyst reiterates an Outperform rating on SHOP stock with a $158 price target, which implies a nearly 29% upside from current levels.

Sebastian asserts, “Positives on the print include revenue and profit upside, accelerating growth and higher gross margin in Merchant Solutions, increasingly diversified revenue base, ramping contributions from upmarket product Shopify Plus (20% of MRR vs. 17% in 1Q17), growing contributions from Shopify Capital and Shipping (1/3 of eligible merchants used Shopify Shipping in March). Despite investments in growth initiatives, profitability was once again above expectations, and the outlook signals ongoing confidence in retention, business development, and product development.”

Yet, the analyst acknowledges, “Questions from the print will include slowing growth in MRR (+57% vs. +62% in Q4) – and corresponding greater mix shift to Merchant Solutions; lower gross margin from core Subscription Solutions (76.9% vs. 79% in Q4).”

Robust merchant engagement trends were in the company’s favor for the quarter, with revenues rocketing 68% year-over-year to $214.3 million, outclassing the Street’s $202.2 million and the tail-end of the guide ranging between $198 to $202 million. Revenue growth fired up especially in Merchant Solutions along with sustained growth in Subscription Solutions, which likewise beat out the Street. SHOP delivered $100.2 million in Subscription Solution, which rose 61% year-over-year against consensus of $97.3 million. Merchant Solutions revenues totaled a 75% year-over-year jump to $114.1 million, marking a 75% year-over-year lift compared to the Street’s $105.3 million.

Sebastian adds, “Profitability also beat expectations,” which benefited from the revenue beat. SHOP posted an adjusted operating loss of $0.2 million, signifying a 0.1% margin that stepped ahead of consensus of -$6.7 million as well as the guide of -$6 million to -$8 million.

Looking ahead to the second quarter, SHOP set its revenue guide from $230 to $235 million, ahead of consensus of $228.6 million. However, the adjusted operating income is anticipated to range between $(7) to $(5) million, falling a bit short of the Street’s expectations.

That said, “Q1 upside flows into updated 2018 guidance,” contends the analyst. The SHOP team boosted its 2018 guide, dialing revenues up from previous expectations of $970 to $990 million up to $1 to $1.01 billion; and adjusted operating income from $(5) to $5 million up to $0 to $5 million.

Colin Sebastian has a very good TipRanks score with a 73% success rate and a high ranking of #12 out of 4,772 analysts. Sebastian realizes 24.9% in his annual returns. When recommending SHOP, Sebastian earns 92.0% in average profits on the stock.

TipRanks suggests analyst sentiment leans towards the bulls when it comes to this Canadian e-commerce platform’s market opportunity. Out of 15 analysts polled in the last 3 months, 9 are bullish on SHOP stock while 6 remain sidelined. With a solid return potential of nearly 18%, the stock’s consensus target price stands at $144.43.