We are believers in Shopify, Mackie Research says

The stock tumbled following its recent quarterly results, but Mackie Research Capital analyst Nikhil Thadani says he is sticking with Shopify (Shopify Stock Quote, Chart, News: TSE:SHOP, NYSE:SHOP).

On Tuesday, Shopify reported its Q3 results. The company lost $9.4-million on revenue of $171.5-million, a topline number that was up 72 per cent better than last year’s Q3.

“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.”

Thadani examined the reasons for the post-quarter drop.

“We believe investors were expecting a larger guidance raise given the stock’s performance going into Q3 results following a recent short seller report,” the analyst explains. “As we have pointed out since our initiation last November, SHOP’s valuation leaves it susceptible to volatility, in the absence of better than expected positive data.”

But Thadani says despite the recent gloom surrounding the Shopify story, there is still much to be positive about.

“We are believers; no change to our positive long term outlook,” the analyst says. “As we have previously pointed out, we view SHOP as one of the highest quality organic growth Canadian tech stories. We believe SHOP’s acknowledged TAM of $10 bln could likely be larger, as SHOP opens up eCommerce to previously untapped new small businesses. Cash and marketable securities of ~$925 mln provide M&A optionality to accelerate revenue growth.”

In a research update to clients today, Thadani maintained his “Buy” rating and one-year price target of (U.S.) $120.00, implying a return of 21 per cent at the time of publication.

Thadani thinks Shopify will generate EBITDA of $20.9-million on revenue of $658.3-million in fiscal 2017. He expects those numbers will improve to EBITDA of $61.9-million on a topline of $888.7-million.