Shopify has more upside to come, says National Bank

National Bank Financial Markets reported on Thursday on the latest quarterly numbers from Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP), with analyst Richard Tse saying the Canadian e-commerce company is executing well despite macro-level headwinds.

Shopify shares spiked 17 per cent in Thursday trading as investors reacted to the company’s third quarter financials, which featured revenue up 22 per cent year-over-year to $1.4 billion, a net loss of $158.4 million or $0.12 per share and an adjusted operating loss of $45.1 million compared to operating income of $140.2 million a year ago. Looking ahead, Shopify management guided for a fourth quarter adjusted operating loss comparable to that of the Q3. (All figures in US dollars.)

“Shopify is the central nervous system that powers millions of businesses around the world. During Q3, merchants continued to recognize Shopify’s exceptional value and increased their adoption of our essential tools and innovative solutions,” said President Harley Finkelstein in a press release.

Looking at the results, Tse called them in-line to a slight beat, with the $1.366 billion topline coming out ahead of Tse’s estimate at $1.291 billion as well as the consensus call at $1.337 billion. Adjusted EPS of negative $0.02 per share was better than Tse’s forecast at negative $0.07 per share as well as the Street also at negative $0.07 per share.

Tse pointed out that the year-over-year comparisons were tough, as the Q3 2021 featured 46 per cent year-over-year revenue growth and with the wider economic environment now featuring issues such as rising interest rates and inflation. 

But beyond the headlines, Tse said Shopify’s third quarter shows a company continuing to execute, with key performance indicators like its Q3 take rate hitting a new all-time high of 2.143 per cent (up 26 bps year-over-year) and Shopify Plus monthly recurring revenue now making up 33 per cent of the overall MRR, while SHOP international merchant count keeps growing. 

“The reality is that growth has (is) moderated (ing) this year in the absence of the pandemic tailwind for online commerce. While that may be true, we think it’s also true that Shopify’s platform is continuously improving in the face of that, with SFN having the potential to offer Shopify another competitive advantage,” Tse wrote.

Tse is forecasting Shopify to generate full 2022 revenue and adjusted EBITDA of $5.557 billion and negative $60.5 million, respectively, and then 2023 revenue and adjusted EBITDA of $6.961 billion and positive $60.3 million, respectively.

With the update, Tse maintained an “Outperform” rating on SHOP and target price of $60.00, representing at press time a projected 12-month return of 74.5 per cent.

“We continue to see multiple growth levers ahead of it, with Point-of-Sale being the most recent. Bottom line, at ~5.6x F23 sales (versus historical average of 16.9x), we see a compelling risk-to-reward profile,” he said.