Shopify’s stock is still a buy, Mackie Research says

A pullback in Shopify’s stock (Shopify Stock Quote, Chart, News NYSE:SHOP)  following its Q3 results is an opportunity for investors to add to their position in the stock says Mackie Research Capital analyst Nikhil Thadani.

On Tuesday, Shopify reported its Q3, 2019 results. The company lost (US) $72.78-million on revenue of $390.6-million, a topline that was up 45 per cent over the same period last year.

“More than a-million merchants are now building their businesses on Shopify, as more entrepreneurs around the world reach for independence,” said Tobi Lutke, Shopify’s chief executive officer. “These merchants chose Shopify because we’re making entrepreneurship easier, and we will continue to level the playing field to help merchants everywhere succeed.”

“Our strong results in the quarter were driven in part by the success of our international expansion, which is just one of the many ways we are investing in the platform,” said CFO Amy Shapero. “By carefully balancing these multiple opportunities that have different investment time horizons, we can keep investing in the innovations that will power merchants in the future while helping them grow rapidly today.”

Watch Shopify’s stock for pullbacks, analyst Nikhil Thadani says…

Thadani summarized how the quarter went against his expectations.

“SHOP reported revenue of ~$391 mln (+45% y/y & +8% q/q) — 18th consecutive beat,” the analyst noted. “We expected revenue of ~$387 mln, just above consensus of ~$384 mln vs. guidance range of $377 – 382 mln. While merchant additions are now disclosed on an annual basis, SHOP’s merchant base now exceeds 1 million. We modelled 1.01 million merchants at the end of Q3. Gross Merchandise Volume (GMV) was ~$14.8 bln, just below our $14.9 bln estimate, but above consensus of $14.4 bln. Gross Margin was ~55.5%, ~80 bps above our estimate of ~54.7% but 90 bps below consensus of ~56.4%.Total opex was ~$252 mln vs. our ~$255 mln estimate. SHOP now breaks out amortization of intangibles (in cost of sales) owing to some meaningful acquisitions. This non cash cost was ~$1.7 mln in Q3. Adjusted EBIT was a gain of $10.5 mln vs our $2.9 mln gain estimate and guidance of ~$0-3 mln gain. However, adjusted EPS (we do not back out amortization of intangibles and related taxes) was a loss of 25¢ vs. our 14¢ profit estimate and consensus of 10¢ profit, owing largely to a $48 mln tax provision stemming from a one time capital gain due to transfer of regional relationships and territory rights to aid the company’s international growth.”

In a research update to clients today, Thadani maintained his “Buy” rating and one-year price target of (US) $360.00 on Shopify’s stock, implying a return of 15.2 per cent at the time of publication.

Thadani thinks SHOP will post EBITDA (before stock compensation) of $70.4-million on revenue of $1.56-billion in fiscal 2019.

The analyst says he expects revenue outperformance and growth investment to continue for Shopify.

“Guidance suggests further revenue uptick in seasonally strong Q4, with continued growth investments,” he concluded. “2019 revenue guidance was raised by ~$25-35 mln vs. the ~$8.5 – 13.5 mln beat relative to Q3 guidance range, i.e. by more than the Q3 beat, implying an upward Q4 revision. Management also commented that SHOP has not witnessed any discernible changes in customer behaviour pertaining to the seasonally strong Q4, due to ongoing trade/macro issues. We had previously flagged this as a potential risk to keep an eye on. 2019 adjusted EBIT guidance range was taken up to ~$27 – 37 mln i.e. by $7 mln relative to previous guidance range’s high end i.e. in-line with the Q3 beat and an implicit in-line guide for Q4.”