Yesterday, Shopify reported its Q4 and fiscal 2016 results. In the fourth quarter, the company lost (US) $8.86-million on revenue of $130.4-million, an 86 per cent topline uptick over the same period last year.
“Our work at Shopify is to help entrepreneurs thrive in a space that’s changing all the time, and we did our job especially well this past holiday season,” said CEO Tobi Lutke. “That eight of our 10 top sellers over the Black Friday Cyber Monday weekend were merchants that had upgraded from lower-priced plans reminds us that today’s start-ups become tomorrow’s superstars, at a velocity that appears to be increasing all the time. As the engine powering the growth of these merchants, Shopify has an opportunity that stretches years into the future.”
Abernethy notes that Shopify’s fourth quarter revenue bested his expectation of $121.4-million and the street consensus of $121.7-million. He notes that while gross profit was higher than he expected, Shopify continues to invest heavily back into its business, including hiring more employees, expanding its partner program and investing in Shopify Plus. Ultimately, the analyst says he expects the result will be solid margins for the company in the years to come.
“Shopify remains in rapid growth mode and has only recently turned EBITDA positive,” says Abernethy. “Management is still targeting positive operating earnings by late 2017. Longer term, we believe that the Company’s EBITDA margins could be north of 20%. We are valuing the business today on a blended EV/Sales on our 2018 estimates and DCF basis. Our DCF assumes the Company approaches 1M merchant subscriptions and just over 20% operating margins. We compare Shopify to other high growth SaaS/e-commerce companies and note that they have recently moved up and are now trading in the 6-8x EV/Sales range or higher. Given Shopify’s Q4 outperformance, increased guidance, and our positive long-term outlook on the stock we have moved the EV/Sales multiples up to 6-7x from 5-6x.”
In a research update to clients today, Abernethy maintained his “Buy” rating on Shopify, but raised his one-year price target from (US) $52.00 to $65.00, implying a return of 7.2 per cent at the time of publication.
Abernethy thinks Shopify will generate Adjusted EBITDA of $2.5-million on revenue of $594.7-million in fiscal 2017. He expects these numbers will improve to EBITDA of $44.3-million on a topline of $803.2-million the following year.