Shopify has a 48 per cent upside, says National Bank

Multiple growth levers and a disciplined approach to capital spend are a winning combination for Canadian e-commerce giant Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP), according to National Bank Financial analyst Richard Tse, who provided an update to clients on the company on Monday.

National Bank took part in investor meetings on Monday with SHOP CFO Jeff Hoffmeister and Director of IR Carrie Gillard, with Tse coming away with a reinforced investment thesis on the stock. Tse said Shopify’s growing list of merchant services like Shopify Fulfilment Network, Shopify Plus, Capital and Markets are currently at the beginning of their path to adoption.

Moreover, Tse said Hoffmeister is working on bridging a perception gap between investors and the company on the topic of capital allocation.

“While the consensus view is that Shopify has historically been a grow at all cost name, we heard Management’s thought process around capital deployment and how a big part of that has put it in a position to harvest a vast and ever-growing arsenal of products and services,” Tse wrote.

“We believe the expanding portfolio of products and services has the potential to drive operating leverage through increased attach rates with slower relative OPEX growth. And while it may not be as clear following the Company’s recent results in terms of its path to profitability, it did appear through our meetings that it is operating with such discipline in the background when it comes to OPEX growth ex items,” he said.

On Shopify Fulfilment, Tse said it’s progressing better than expected, noting that the acquisition of Deliverr has the potential to moderate the investment SHOP needs to make on its fulfilment network, resulting in a lower expected capex in 2023, according to the analyst.

Tse is forecasting SHOP’s revenue to go from $5,599.9 million in 2022 to $6,674.2 million in 2023 and for its adjusted EBITDA to go from negative $41.4 million in 2022 to positive $53.4 million in 2023.

With the update, Tse reiterated an “Outperform” rating on SHOP and US$60.00 target price, which at press time represented a projected one-year return of 48.2 per cent.

“Like the name or not, there’s no denying this Company remains the firm leader in their respective market which affords a lot of potential upside if can continue to execute. With already a modest share of the overall commerce market (~ten per cent in U.S. eCommerce, far less in ROW) we can only think that upside potential is vastly higher particularly as Shopify expands its portfolio,” Tse wrote.