Canadian tech sensation Shopify (Shopify Stock Quote, Chart, News NYSE:SHOP) has been an unstoppable force this year, and National Bank Financial analyst Richard Tse sees still more upside to the name over the next 12 months.
In a research flash to clients on SHOP’s new Walmart deal, Tse reiterated his “Outperform” rating and US$850.00 target, which at press time represented a projected 12-month return of 11.4 per cent.
Shares of e-commerce company Shopify jumped over eight per cent on Monday after the company announced a partnership with retail giant Walmart, one which will provide Shopify merchants with access to Walmart’s customers through a dedicated Walmart channel. The invite-only partnership will see a likely 1,200 merchants (qualified by Walmart) to sell through the new Walmart marketplace by the end of the year, according to Shopify.
“By partnering with Walmart, we will be able to connect merchants with consumers across America within a trusted marketplace, helping merchants drive new sales while consumers discover new products they’ll love,” said Satish Kanwar, Vice President of Product at Shopify, in a press release. “Our expertise in multi-channel commerce, combined with Walmart’s reach, will allow us to create better online shopping experiences for merchants and consumers alike.”
“This partnership is another example of Shopify opening channels for its merchants – not unlike its recently announced partnership with Facebook. While there are no terms disclosed with respect to the Walmart partnership, we believe there is an economic agreement associated with these partnership deals,” Tse said.
“That said, we think the relative value comes more from providing incremental value to Shopify’s merchant customers. And given Shopify’s merchants will be responsible for services like fulfillment, these partnerships should have the potential to help drive Shopify’s take rate higher,” he said.
Tse said his target price is based on a discounted cash flow model which captures the longer-term outlook beyond his forecast period and implies a target EV/sales multiple of 37.5x on his fiscal 2021 estimates, which he has left unchanged. The analyst also noted that the stock is “pricing in opportunities beyond our shorter-term forecast period.”
Shopify’s share price has climbed rapidly in the past 12 months, moving from about $300 as of last June to where it now sits around the $800 mark.
The company did well in its latest earnings report, showing that the COVID-19 pandemic was having less of an impact on its ability to attract and maintain merchants as some had assumed.
Reporting on May 6, the company saw its first quarter revenue climb 47 per cent year-over-year to $470.0 million, beating its own guidance which called for revenue of about $445 million at its top end. Shopify’s Gross Merchandise Volume for the Q1 was up 46 per cent to $17.4 billion, while its net loss for the quarter was $31.4 million or $0.27 per share compared with a net loss of $24.2 million or $0.22 per share a year earlier. (All figures in US dollars.)