The Shopify party isn’t over, National Bank Financial says

Even with all its gains stretching back a number of years and including this week’s spike, investors should take note that Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) is still scaling.

That’s the takeaway from analyst Richard Tse of National Bank Financial, who on Wednesday reviewed Shopify’s latest quarterly results and upped his price target on the stock.

SHOP shares took a big leap this week on the release of fourth quarter earnings which beat estimates on revenue, gaining 47 per cent year-over-year to $505.2 million. The e-commerce company saw its Subscription Solutions revenue grow by 37 per cent to $183.2 million while Merchant Solutions grew by 53 per cent to $322.0 million, aided by a 44 per cent jump in gross merchandise value. (All figures in US dollars.)

Shopify’s Q4 also featured adjusted net income of $50.0 million or $0.43 per share compared to $29.4 million or $0.27 per share a year earlier.

Analysts had been expecting an adjusted profit of $0.24 per share. Shopify’s operating cash flow came in at $53 million (free cash flow of $39 million).

The company capped off the momentum-building year with guidance calling for first quarter revenue between $440 million and $446 million and full-year 2020 revenue between $2.13 billion and $2.16 billion.

“2019 was a milestone year for us,” said Tobi Lütke, Shopify’s CEO, in a press release. “We’ve earned the trust of more than one million merchants, and we are motivated more than ever to keep lowering the learning curve so anyone, anywhere can become an entrepreneur.”

Tse said the Q1 2020 and full-year guidance came relatively in line with expectations, although he added that the outlook may be conservative given the company’s continued execution.

“Having combed through the press release, filings and conference call, we think you can take the fiscal Q4 quarter at face value, meaning no surprises relative to our investment thesis. If anything, the big takeaway is that everything we heard and saw reinforced multiple incremental growth drivers from Shopify Plus to new services like Shopify Fulfillment Network (SFN), an increasing take rate up 40 bps to 1.56 per cent this quarter, and a growing GMV up 47 per cent year-over-year. And while all those drivers support continued upside, it’s the underlying execution that drives confidence on the potential follow-through and valuation upside,” Tse wrote.

Tse said that Shopify is still in the early stages of a rapidly growing e-commerce market. With the update, Tse reiterated his “Outperform” rating but raised his target from $500.00 to $600.00, which at the time of publication represented a projected 12-month return of 13 per cent.

For fiscal 2020, Tse thinks SHOP will generate revenue of $2.16 billion and EBITDA of $27 million. For fiscal 2021, Tse is calling for revenue of $2.82 billion and EBITDA of $53 million.

“Like other disruptive leaders, we believe the upside in the stock comes from organic growth from incremental growth drivers like International, new Merchant Services and Shopify Plus (larger enterprises),” Tse wrote.