Shopify has 26 per cent upside, Industrial Alliance Securities says

Shares of Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP) have climbed higher over the past week as investors continue to respond positively to the e-commerce company’s third quarter financials. The strong quarterly numbers have also resulted in a target price lift from analyst Blair Abernethy of Industrial Alliance Securities who in a November 1 research update reiterated his “Buy” recommendation with the new target of $170.00 (was $165.00). (All figures in US dollars.)

Shopify’s share price popped 12 per cent last Thursday on its Q3 report which featured revenue of $270.1 million, a 58 per cent year-over-year increase that beat the consensus estimate of $255 million. The company also beat on adjusted earnings, coming in at $4.5 million or $0.04 per share, well ahead of the Street’s negative $0.04 per share. New customer additions from both core and newer geographies resulted in subscription growth of 46 per cent year-over-year, while its Merchant Solutions segment grew by 68 per cent year-over-year.

Abernethy says there’s upside remaining for investors, attested to by Shopify’s rapid customer adds, its transaction volumes and a broadening partner ecosystem.

“Shopify remains in rapid growth mode and, we believe, has an expanding set of new product opportunities to invest in and pursue,” says Abernethy. “Longer term, we believe that the Company’s EBITDA margins will likely be north of 20 per cent; however, we see Shopify as continuing to focus more on growth and platform enhancement at the expense of margins over the next year or so.”

The analyst has revised his estimates, now calling for fiscal 2018 revenue and Adjusted EBITDA of $1,050 million and $36.5 million, respectively (was $1,019 million and $33.8 million, respectively). For fiscal 2019, the analyst predicts revenue and Adj. EBITDA of $1,457 million and $71.6 million, respectively (was $1,379 million and $70.8 million, respectively).

Abernethy’s new target represents a projected return of 25.6 per cent at the time of publication.