Shopify target price lowered by Roth Capital

Roth Capital Partners analyst Darren Aftahi is sticking with Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP) after the company’s latest earnings came in ahead of expectations although lighter on guidance. In a Thursday update to clients, Aftahi reiterated a “Buy” rating and nudged his 12-month price target lower, from $56.00 to $55.00, which was good for a projected return of three per cent at the time of publication.

E-commerce giant Shopify released its fourth quarter and full 2022 financials on Wednesday, showing total revenue up 26 per cent year-over-year to $1.7 billion and a net loss attributable to shareholders of $0.49 compared to a loss of $0.30 a year earlier. (All figures in US dollars.)

“The strength of our Q4 and full year performance in 2022 is a testament to the resilience of our merchants. Despite persistent macroeconomic challenges, they continued to succeed on Shopify, growing sales and using more of our mission-critical tools to run their businesses,” said Harley Finkelstein, Shopify President, in a press release.

Breaking down the topline, Shopify’s Merchant Solutions revenue grew by 30 per cent year-over-year to $1.3 billion, while Subscription Solutions revenue increased by 14 per cent to $400.3 million. Gross Merchandise Volume (GMV) was up 13 per cent to $61.0 billion. 

As for management’s outlook, guidance called for revenue growth in the high-teen percentages for the Q1 2023, for gross margin to be slightly higher sequentially and for capex to be in-line with 2022 numbers.

Looking at the results, Aftahi said they were better than expected, with the $1.735 billion topline comparing to his estimate at $1.683 billion and the Q4 adjusted EBITDA loss of $14 million coming in better than his estimate at negative $47 million. Non-GAAP EPS at $0.07 per share was under the Roth Capital forecast of $0.11 per share.

Aftahi called the Q1 2023 guidance “in-line at best, with a skew to the soft side” and said Q3 growth in GMV and revenue was modest relative to the third quarter 2022.

“Although growth has slowed and the outlook could be seen as softer (although it includes a guide from a new CFO), we believe [the] potential that aggressive investing is behind SHOP could be better received by investors once the smoke clears,” Aftahi wrote. “Overall, we lower our revenue cadence, but that is more than offset by lower cost growth, yielding improved profits.” 

Aftahi is forecasting Shopify to generate first quarter 2023 revenue and EPS of $1.414 billion and $0.01 per share, respectively, and for the full 2023 year to run to revenue of $6.352 billion (previously $6.531 billion) and $0.13 per share (previously $0.83 per share), respectively.

“Overall, with the stock having run ~49 per cent YTD and a softer sales guide, we would look for a more favourable entry and validation e-commerce consumption remains elevated despite macro concerns. We do however like the improved take rates, which are likely understated given the dilution from international where products are limited but account for ~45 per cent of merchants and ~27 per cent of sales,” Aftahi wrote.