Shares of Shopify (TSE:SHOP, NYSE:SHOP) fell sharply following the company’s third quarter results, but National Bank Financial analyst Richard Tse says he saw nothing scary in the report, which was issued on Halloween day.
This morning, Shopify reported its Q3 results. The company lost $9.4-million on revenue of $171.5-million a topline that was up 72 per cent over the same period last year.
“In today’s fast-changing retail environment, merchants large and small are hungry to leverage all that technology can do for them,” CFO Russ Jones said. “This is why our platform is so valuable to merchants and why they keep coming to Shopify. Our results underscore this, with another record quarter for merchant adds, along with a record number of store launches on Shopify Plus in the third quarter. On the strength of these results and our underlying business model, we are raising our forecasts for the fourth quarter and full year 2017.”
Tse says investors with a longer term take will ultimately benefit.
“Despite the pullback in SHOP today – we saw nothing scary in the Halloween results,” the analyst says. “If anything, everything we saw and heard remains consistent with our investment thesis. To recap the hair-raising background – Shopify was a target of a short report earlier this month. In short, that report, which was followed today by additional comments, suggested that Shopify was potentially in breach of FTC regulations in regards with how it markets its platform among other things (detailed in our note referred to above). Bottom line, our view at the time of writing was and continues to be that in the short term, it will weigh on the stock despite what we believe to be an unchanged fundamental outlook. Beyond that potential short-term volatility we continue to believe it opens a window for longer term investors. With respect to the Q3 results, not only were the results consistent with our thesis, they were ahead of our expectations with the big surprise of profitability coming earlier than expected.”
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In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of (U.S.) $120.00 on Shopify, implying a return of 22 per cent at the time of publication.
Tse thinks Shopify will generate EBITDA of $15.2-million on a topline of $660.2-million in fiscal 2017. He expects those numbers will improve to EBITDA of $42.8-million on revenue of $974.1-million the following year.