Is this the overlooked reason Shopify is so successful?

Canadian e-commerce company Shopify (Shopify Stock Quote, Chart, News NYSE:SHOP) just announced its third quarter earnings and National Bank Financial analyst Richard Tse was impressed by the better-than-expected results.

In an update to clients on Thursday, Tse maintained his “Outperform” rating and $1,250.00 target price, saying Shopify’s enterprise platform, Shopify Plus, is the company’s next big money-maker.

Shopify reported its Q3 2020 results on Thursday, showing revenue of $767.4 million, a 96 per cent increase year-over-year, with gross merchant volume (GMV) growing by 109 per cent to $30.9 billion. Adjusted net income hit $140.8 million or $1.13 per diluted share. Shopify ended the quarter with $6.12 billion in cash, equivalents and marketable securities, up from $2.46 billion at December 31, 2019, and reflecting two share offerings this year for combined proceeds of $3.49 billion. (All figures in US dollars.)

The company spoke of the ongoing accelerated shift to e-commerce as a result of COVID-19 as a factor in SHOP’s big numbers, where the company’s Subscription Solutions revenue grew by 48 per cent year-over-year to $245.3 million.

“While we believe [the quarterly results] are positive, having followed this name for some time, we also took away something more qualitative from its quarterly conference call and that’s the Company’s ability to respond quickly which in itself is an endorsement of its operating prowess…”

“Shopify’s tremendous third-quarter results reflect the resilience and entrepreneurial spirit of our merchants,” said Amy Shapero, Shopify’s CFO. “More entrepreneurs are signing on to Shopify so they can quickly and easily put their ideas into action. We continue to evolve our global commerce operating system to make it easier for merchants to get online and start selling, get discovered, and get their goods to buyers, while providing a delightful shopping experience.”

On the quarter, Tse said the $30.9-billion in GMV was well above his already-bullish estimate of $28.1 billion, while sales of $767 million and EPS of $1.13 per share were also better than his estimates of $688 million and $0.57 per share, respectively.

“We only point that out as we think that ability to be nimble and respond quickly is one of the most notable drivers of success in this rapidly evolving and competitive market segment and it’s our view that those rapid responses allowed Shopify to harvest outsized value…”

“While we believe [the quarterly results] are positive, having followed this name for some time, we also took away something more qualitative from its quarterly conference call and that’s the Company’s ability to respond quickly which in itself is an endorsement of its operating prowess.”

“We only point that out as we think that ability to be nimble and respond quickly is one of the most notable drivers of success in this rapidly evolving and competitive market segment and it’s our view that those rapid responses allowed Shopify to harvest outsized value under the current backdrop. That’s important because the potential value we expect to come into the stock will be in the form of initiatives like SFN and Plus, and we can only credit some value in our target price if we have evidence that they have a record of execution – and so far – as in this and previous quarters – they have which is why we ascribe value to those incremental growth initiatives,” Tse wrote.

Tse also pointed out that Shopify brought a record number of merchants to Shopify Plus, with notable names including Dior, Beyond Meat, BCBG Max Azria, Paramount Pictures and CLIF Bar. A potential multi-billion-dollar opportunity, the company said Shopify Plus merchants grew their share of overall GMV and were one of the biggest contributors to GMV in absolute terms.

“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 via incremental growth drivers like International, new Merchant Services, Fulfillment and Shopify Plus (larger enterprises),” Tse said.

Tse’s $1,250.00 target represented at the time of publication a projected return of 25.2 per cent.