Shopify wins another price target raise from National Bank Financial

It’s hard to argue with success and that’s definitely the case for Canadian e-commerce company Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP), says National Bank Financial analyst Richard Tse, who reviewed SHOP’s latest quarterly results in an update to clients on Wednesday. Tse continues to believe Shopify is in the early stages of a growing e-commerce market and thinks even with the stock’s huge gains in recent years, there’s more runway left.

Shopify, whose platform allows merchants to manage their online sales, payments and other business, announced its fourth quarter 2020 financials on Thursday, reporting revenue up 94 per cent to $977.7 million and gross merchandise volume (GMV), a measure of the total dollar value of orders through Shopify’s platform, apps and channels, grew by 99 per cent year-over-year to $41 billion for the Q4. (All figures in US dollars.)

It was a blockbuster year for Shopify, where revenue grew 86 per cent over 2019’s results, as merchants flocked to SHOP’s platform in the wake of COVID-19. GMV grew by 96 per cent in 2020, while adjusted net income hit $491.3 million or $3.98 per diluted share compared to $34.3 million or $0.30 per share in 2019. At the same time, Shopify declined to provide guidance for the upcoming year, saying instead that the company’s growth rate would be somewhat lower than that experienced in 2020.

“Growth accelerated to 53 per cent year-over-year with Monthly Recurring Revenue up from $53.9 million as of December 31, 2019, due to the continued high number of new merchants joining the platform in the quarter following record merchant additions in the third quarter,” Shopify said in the quarterly press release.

“Q4 2020 MRR also benefited from incremental new revenue from our Retail POS Pro subscription offering, as subscription pricing came into effect in November 2020. Shopify Plus contributed $21.0 million or 25 per cent of MRR compared with 27 per cent of MRR as of December 31, 2019, as a result of the significantly higher number of merchants on standard plans joining the platform in 2020,” the company said.

On the quarter, Tse said the numbers were better than he and the Street expected. Tse had forecasted a Street-high GMV of $41.2 billion compared to the consensus estimate at $36.7 billion and SHOP’s $41.1 million. On sales, Q4 revenue of $978 million was also better than Tse’s $949-million estimate.

Tse said the Q4 results give a glimpse of the potential profitability and cash flow within Shopify’s operating model, where adjusted operating income came in at $200.0 million and a 20-per-cent margin versus Tse’s estimate of $111 million for a 12-per-cent margin. The result was an adjusted EPS of $1.58 per share, which was well above Tse’s forecasted $1.07 per share. Tse also noted that cash from operations was up a huge 364 per cent year-over-year to $245.4 million, while the company finished the quarter with a cash balance of $6.4 billion.

Shopify’s share price has continued to impress, rising 178 per cent in 2020 and climbing a further 26 per cent so far in 2021.

But Tse thinks there’s more upside. With his update, Tse reiterated his “Outperform” rating for SHOP and increased his target price from $1,400.00 to $1,650.00, which at the time of publication represented a projected 12-month return of 13.8 per cent.

“We continue to believe there’s considerable runway from different avenues of growth (International, Plus, SFN, and now POS). That said, we understand there may have been some hesitation despite the strong quarter,” Tse wrote. “While fundamentally, the results and assumptions around the Company’s outlook continue to support our investment thesis, expectations were high going into the quarter as highlighted in our recent preview.”

“Our other takeaway from the results, conference and Company call was that there wasn’t much in the way of ‘new’ initiatives that most investors weren’t already aware of going into the quarter. And in a momentum driven market that lack of “new” often has the potential to create short-term inertia. Finally, we think the withdrawal of guidance also contributed to some short-term pause as it adds some uncertainty and creates potential volatility around the consensus numbers going forward,” he wrote.

“With the above said – we continue to like SHOP and believe that view is supported by the actual results and our forecasts which point to a promising outlook despite moderating growth in 2021 which should be of no surprise to anyone given the obvious outsized lift in e-Commerce from COVID over the past year,” Tse said.

For the upcoming year, Tse thinks Shopify will generate revenue of $3,890.6 million, adjusted EBITDA of $561.4 million and adjusted EPS of $4.54 per share. His call for 2022 is for revenue of $4,981.3 million, adjusted EBITDA of $670.6 million and adjusted EPS of $5.84 per share.