Shopify has price target cut at National Bank

Shares of Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) have been falling sharply the last two trading days after the e-commerce company suspended its 2020 guidance on account of the COVID-19 pandemic.

But investors should look beyond the present calamity and see Shopify for the disruptive force it is in the growing e-commerce movement, said National Bank Financial’s Richard Tse, who issued an update on the company on Tuesday.

Shopify made its announcement late Tuesday afternoon saying that while the company maintained strong momentum in through January and February of this year, enough for its Q1 to come within or ahead of its expectations, looking ahead the path is not so clear.

“Given the uncertainty surrounding the duration and magnitude of COVID-19, Shopify is suspending the financial expectations provided for full year 2020,” the statement read.

The company says it’s taking a number of measures aimed at helping its merchants during the days ahead, including offering an extended 90-day free trial to all new standard plan signups, local in-store/curbside pickup and delivery for POS merchants and a $200-million commitment for Shopify Capital.

On the announcement, Tse said not only does it come as no surprise but he expects many more such guidance withdrawals in upcoming days and weeks.

The analyst said it’s a positive for Shopify that its Q1 numbers look to be largely unaffected due to the
successes of January and February but, in general, it’s unclear whether online retail is necessarily going to triumph in the age of social distancing.

“Going forward, while online retail may outperform traditional retail on a relative basis, even that potential could be disrupted this year as not all their retailers may have products carrying the same level of demand given the economic backdrop, not to mention potential supply-chain disruptions,” Tse wrote.

As for Shopify, Tse said the current disruption should give the company “time to fortify its position with fewer distractions, in some respects” and that the company’s hefty $2.5 billion in cash on the balance sheet with no debt will definitely help.

“Bottom line, our view remains unchanged, particularly if we look past 2020. We continue to believe Shopify is in the early stages of a rapidly growing e-Commerce market that will eventually resume. Shopify remains a leading disruptor and we believe upside in the stock will come from organic growth from incremental growth drivers like International, new Merchant Services, Fulfillment and Shopify Plus (larger enterprises),”
Tse said.

The analyst has revised his forecasts, calling now for fiscal 2020 revenue and EBITDA of $1.847 billion and $20 million, respectively, and for fiscal 2021 revenue and EBITDA of $2.527 billion and $44 million, respectively. (All figures in US dollars.)

With the update Tse maintained his “Outperform” rating and reduced his target price from $600.00 to $550.00, which at press time represented a projected 12-month return of 43 per cent.

For 2019, Shopify is currently down six per cent.