Shopify wins target raise from Roth

In a quarterly preview on Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP), Roth Capital Partners analyst Darren Aftahi nudged up his target price on the stock while maintaining a “Buy” rating. The analyst said in his Thursday report that a survey of merchants on SHOP’s platform shows growth accelerating through the second quarter of the year.

Aftahi reported on Roth’s quarterly survey of Shopify merchants, this time encompassing about 122 merchants surveyed throughout June and the early part of July. Of those surveyed, the median growth respondents saw over the Q2 was about 14.2 per cent year-over-year, which Aftahi said compared to last quarter’s survey at about 10.4 per cent year-over-year.

Aftahi said that consistent with prior surveys, the range of sales income varied from a few thousand to fifty-four respondents with over $500k, 16 with seven-figure sales and four with over eight figures. 

Roth has historically used the average growth acceleration as a proxy for Shopify’s Gross Merchandise Value (GMV), or, the total value of merchandise sold over the platform.

 “Our model suggests ~13.6 per cent GMV growth, slowing ~90bps quarter-on-quarter but improving ~260bps year-over-year, which we anticipate to be driven by continued merchant growth on the Plus and International segments. We model for MRR growth of ~12.6 per cent, on par with 2Q22 growth rates and accelerating ~240bps from 1Q23,” Aftahi wrote.

“Our checks give us confidence our/consensus topline estimates could prove conservative, along with an improving profit outlook. We continue to recommend SHOP shares with industry leading growth in the mid-20 per cent,” he said.

Shopify plans to release its second quarter results after market close on August 2. Aftahi is calling for Q2 revenue of $1,623.2 million and EPS of $0.05 per share. (All figures in US dollars.)

With the update, Aftahi moved his target price on SHOP from $68 to $73, implying a one-year return at press time of 10.7 per cent.

“We expect SHOP to grow sales by over 25 per cent in 1H23, which places it at the high end of peers’ growth of 25 per cent. Those peers trade anywhere from 11-13x EV’23E sales. Our revised multiple of 13.4x EV/’23E sales reflects higher confidence in go-forward growth as well as an improving profit profile and picture. Our assumption is post 2Q23 results, our model will be revised upward,” he said.