Shopify stock upgraded to a Buy by Roth Capital

The last of the tough comps should be behind Canadian e-commerce giant Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP), according to Roth Capital Partners analyst Darren Aftahi, who moved his rating from “Neutral” to “Buy” in a Company Note to clients on Monday. Aftahi said he likes Shopify’s decision to upgrade its pricing tiers, a move which should provide for more visibility on projected revenue for both the company and investors.

Shopify has seen its share price decimated over the past year, losing almost 79 per cent of its value between November, 2021, and the end of 2022. The stock has rallied in recent weeks, however, rising about 39 per cent so far in the new year.

But Aftahi sees more upside to come. The analyst has maintained a 12-month target price of $56.00 per share, which at press time represented a projected return of 11.8 per cent.

To make his case, Aftahi said he thinks the tough earnings comparisons have already come and gone. Shopify made hay early on in the pandemic and more than tripled its sales in a three-year period, as the pandemic turned more people to online shopping. Aftahi said he expects revenue to grow at about 18 per cent year-over-year in 2023, with that number coming on a much larger base, the analyst reminded.

“We believe that could be closer to 20 per cent (or better) with its new pricing tiers it announced last week,” Aftahi said.

On the new pricing tiers, the analyst said after remaining virtually unchanged over the last 12 years, the new announcement from SHOP has the company announcing updated pricing tiers for merchants of about 33 per cent on average across tiers. The end result is more visibility on the company’s subscription revenue, which is a net positive for the stock and its respective multiple, according to Aftahi.

“Overall, we believe part of the reason behind the price increase is to funnel more merchants to annual plans (a discount to monthly), which helps lock in revenue and visibility. When considering the pure number of merchant solutions and other tools SHOP has added to the platform, we believe the price increase is warranted, for a best-in-class e-commerce solution, including a $1/month trial option,” Aftahi said.

Ahead of fourth quarter 2022 earnings due in February from Shopify, Aftahi is calling for revenue of $1.683 billion and EPS of $0.11 per share, while for the upcoming 2023 year he is forecasting $6.531 billion in revenue and EPS at $0.83 per share. (All figures in US dollars.)