Shopify is still in its early stages, National Bank says

National Bank Financial analyst Richard Tse is staying bullish on Shopify (Shopify Stock Quote, Chart, News NYSE:SHOP) after quarterly results which he called stellar.

In an update to clients on Wednesday, Tse reiterated his “Outperform” rating for the stock and $1,250.00 target, which at press time represented a projected 12-month return of 14.2 per cent.

E-commerce platform Shopify announced on Wednesday its fiscal second quarter results for the period ended June 30, 2020. SHOP recorded a 97-per-cent year-over-year increase in revenue to $714.3 million, with Subscription Solutions revenue up 28 per cent year-over-year to $196.4 million and gross merchandise volume of $30.1 billion, up 119 per cent from a year earlier.

Net income for the second quarter was $36.0 million or $0.29 per diluted share compared to a net loss of $28.7 million or $0.26 per basic and diluted share last year. (All figures in US dollars.)

“The strength of Shopify’s value proposition was on full display in our second quarter,” said CFO Amy Shapero in a press release. “We are committed to transferring the benefits of scale to our merchants, helping them sell more and sell more efficiently, which is especially critical in this rapidly changing environment. With our strong balance sheet and through prudent capital allocation, we remain well positioned to continue solving critical pain points for our merchants and contribute to their success for years to come.”

On the quarter, Tse said the results were better than expected, with the $30.1-billion in GMV far above his estimate of $19.0 billion. The company’s take-rate of 1.72 per cent, up from 1.51 per cent a year earlier, also beat Tse’s forecast of 1.62 per cent.

“No doubt, the health backdrop was a big contributor to [Shopify’s second quarter] performance as many merchants shifted their sales to online, accelerating a trend that was already under way,” wrote Tse.

“And while this quarter’s outsized growth will likely moderate, we think that accelerated shift (relative to pre-COVID) will continue. If that weren’t enough, there was an interesting nuance for those looking for that longer-term view and that was how much operating leverage kicked when it comes to showing the potential cash flow and profitability that could come down the road at full scale. Bottom line, everything we saw is consistent with our investment thesis and given a cash (and equivalents) balance of
~$4.0 billion, there’s a lot of flexibility to invest in multiple and expanding growth
drivers,” Tse said.

Other takeaways from the quarter for Tse included positive signs from Shopify Plus, the company’s large merchant service, which hit a new record in terms of new merchants added -and to Tse, Plus represents another potential multi-billion dollar opportunity.

Tse also said there’s plenty of runway for SHOP’s growth, which he sees management actively pursuing through near-term initiatives like Plus, Shopify Payment and Shopify Capital, through mid-term moves to expand its platform internationally and via Shopify POS and through long-term aims with its fulfillment network, 6River System, Balance, SHOP App and Wholesale B2B.

“We continue to believe Shopify is in the early stages of a scaling e-Commerce market. 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.