National Bank Financial analyst Richard Tse sees a growing disconnect between bearish sentiment on Shopify (TSX, NYSE:SHOP) and the company’s continuing solid results.
This morning, Shopify reported its Q1, 2018 results. The company lost (US) $15.9-million on revenue of $214.3-million, a topline that was up 68 per cent over the same period last year.
“Merchants love Shopify because it allows them to sell anywhere, any time. It also helps them with the many tasks that come with running a retail business,” CEO Tobi Lutke said. “These layers of value we offer merchants give us a healthy variety of growth drivers. One of those drivers is our merchants’ own success. Helping them get their first sale and keeping them selling is a big part of what we work on everyday.”
Tse says under the glare of a seemingly growing army of doubters, Shopify once again delivered with its first quarter results.
“While there has been some growing bear chatter on SHOP recently – the reality is this, Q1 results and the outlook for the remainder of 2018 were solid all around with the underlying metrics to support our investment thesis that sees Shopify continuing its growth momentum beyond 2018,” the analyst says. “With respect to those results, Shopify beat its own Q1 guidance, our numbers and consensus in Q1 while revising full-year F2018 guidance above that implied by the Q1 beat. In a seasonally soft quarter, Shopify’s Gross Merchandise Value (GMV), a measure of the dollar value of products running over Shopify’s platform, surprised to the upside coming in at $8 bln (+64% y/y). And when investors were expecting a downtick in the take rate Q/Q (seasonality), we actually saw that take rate increase to 1.44% by our estimate (vs. 1.35% Y/Y and 1.41% Q/Q). Perhaps more importantly, it was driven by Shopify’s Plus Merchant mix trending higher to 22% of MRR, plus an increasing penetration of Capital and Shipping. Bottom line, all that info speaks to a name that’s tracking in line with our expectations;
yet, the stock is not pricing that in which suggests an opportunity in our view.”
In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of (US) $160.00 on Shopify, implying a return of 30 per cent at the time of publication.
Tse thinks Shopify will generate EBITDA of (all figures USD) $24.0-million on revenue of $1.01-billion in fiscal 2018. In 2019, he expects those numbers will improve to EBITDA of $79.0-million on a topline of $1.38-billion the following year.
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