On November 1, Shopify is expected to report its Q3, 2017 results. Abernethy thinks the company will generate EBITDA of $600,000 on revenue of $166.8-million, a topline that would be up 67.5 per cent over the $99.6-million the company reported in the samer period last year.
Abernethy says in many ways it is still early days for the Ottawa-based company.
“Shopify remains in rapid growth mode and has only recently turned EBITDA positive,” the analyst notes. “Management is still targeting positive adjusted operating earnings by late 2017. Longer term, we believe that the Company’s EBITDA margins could be north of 20%, however we see the Company focusing more on growth in the next few years. We compare Shopify to other high growth SaaS/e-commerce companies, which are trading in the 7-9x EV/Sales range, while most are growing at a much slower pace than Shopify.”
In a research update to clients today, Abernethy maintained his “Buy” rating and one-year price target of (U.S.) $105.00, implying a return of 6.1 per cent at the time of publication. But the analyst explains that a higher target may be on the way.
“While the stock is currently approaching our target price, we believe the market is looking relatively far ahead for continued rapid growth from Shopify. We currently expect ~30% organic revenue growth in 2019, which, all else being equal, could eventually drive our valuation toward the $115-120 range,” he says.
Abernethy thinks Shopify will generate EBITDA of $8.0-million on revenue of $642.0-million in fiscal 2017. He expects those numbers will improve to EBITDA of $44.9-million on a topline of $894.1-million the following year.