Shopify gets new (U.S.) $280.00 price target at Mackie Research

Following what he describes as a “surprising” quarter, Mackie Research Capital analyst Nikhil Thadani has aggressively raised his price target on Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP).

On Tuesday, Shopify reported its Q1, 2019 results. The company lost (US) $24.15-million on revenue of $320.5-million, a topline that was up 50 per cent over the same period a year prior.

“The information age is rapidly changing how commerce is done and by whom,” CEO Tobi Lutke said. “By harnessing these changes to empower entrepreneurs, Shopify is meeting a need that is not only global and growing, but that is likely to continue growing for the foreseeable future.”

Thadani says the company’s guidance raise for 2019 and the Q1 operating leverage, which he describes as a surprise, bode well for the future at Shopify.

“On what is now an expected quarterly revenue beat, SHOP shares closed up ~8%. Positive quarterly stock reactions have been somewhat muted since Q3/17 results in October 2017. SHOP’s stock performance yesterday was all the more impressive on the heels of a >60% YTD performance in the stock (~2.7x NASDAQ YTD performance),” the analyst says. “Importantly, 2019 revenue guidance increase of ~$20 mln exceeded the Q1 revenue beat of ~$10 mln (at top end of range), which bodes well given the company’s track record of judiciously managing investor expectations. Q1 results also demonstrated inherent operating leverage in the model, albeit due to lower than expected brand related marketing spending, which could suggest future adjusted operating income could surprise to the upside as well.”

In a research update to clients today, Thadani maintained his “Buy” rating, but raised his one-year price target from $210.00 to $280.00, implying a return of 15.0 per cent at the time of publication.

Thadani thinks SHOP will post EBITDA (before stock compensation) of $81.6-million on revenue of $1.51-billion in fiscal 2019. He expects those numbers will rise to EBITDA of $115.8-million on a topline of $1.99-billion the following year.

“We believe the odds of SHOP’s 2020 top line exceeding $2 bln improved with Q1 results and the accompanying guidance raise, which likely has more upside room,” the analyst adds.