Shopify is the best way to play the eCommerce space, says Paradigm Capital

Ahead of the company’s fourth quarter results, Paradigm Capital analyst Kevin Krishnaratne is feeling bullish about Shopify (Shopify Stock Quote, Chart, News: TSX, NYSE:SHOP).

On Wednesday, February 15, Shopify will report its Q4, 2016 results. Krishnaratne expects Shopify will report gross profit of $60.2-million on revenue of $122.5-million, in-line with the street consensus of $60.7-million in gross profit on a topline of $121.7-million.

Krishnaratne says Shopify is the single best way for investors to play mobile and online commerce.

“Shopify’s strategy is to enable commerce on multiple channels, with a particular emphasis on mobile, which its platform is leveraged to,” says the analyst. “Q4 marked a record for the retail industry with respect to mobile shopping, with Black Friday being the first day to achieve $1B in related sales in the U.S. and CyberMonday seeing mobile revenue up ~12% y/y to ~$1.1B. Q4 disclosures from Apple and PayPal related to mobile payments were also strong and support our view that consumers are spending more time and gaining comfort transacting on mobile channels, a positive for Shopify.”

In a research update to clients today, Krishnaratne maintained his “Buy” rating on Shopify, but raised his one-year price target on the stock from (US) $50.00 to $63.00, implying a return of 14 per cent at the time of publication, including dividend.

Krishnaratne thinks Shopify will post Adjusted EBITDA of $9.1-million on revenue of $579.9-million in fiscal 2017.

But the analyst cautions that Shopify could easily surpass his expectations, especially given a longer time horizon.

“We see several opportunities for the company to beat expectations in the coming quarters and are confident that revenue upside should continue to flow through to the bottom line given the operating leverage inherent in Shopify’s platform,” says Krishnaratne. “Upside to our estimates could be driven by the enablement of incremental channels, channel innovations, new partnerships, new merchant services, further geographical expansion, and better-than-expected Plus sales. In particular, we see the potential for some incremental upside on the back of Shopify’s recent integration with Amazon that was announced on January 5. We do not think the company will provide any quantitative details the partnership could bring in 2017, mainly because benefits are more immediately qualitative in nature.”