Shopify could surprise next quarter, Roth says

Following a mid-quarter channel check, Roth MKM analyst Darren Aftahi remains bullish on Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP).

In a research update to clients August 29, Aftahi maintained his “Buy” rating and 12-month price target of $76.00 on Shopify.

The analyst cautions that there is still work to be done in the coming quarter, but says the results could be better than many expect.

“Our mid-Q checks for SHOP merchants suggest slightly better y/y business growth (16.8% vs. 15% GMV modeled), a proxy we have historically used
for GMV growth. While there is time left in the quarter, our checks give us confidence our topline estimates could prove conservative, which are a touch
higher than consensus. With the pullback in shares, we like risk/reward in the low to mid-$50’s.”

On August 2, SHOP reported its Q2, 2023 results. The company posted Adjusted EPS of $0.14 on revenue of $1.69-billion, beating the consensus of $1.62-billion.

“Our business momentum has led to another quarter of strong financial results. We’re not just shipping products faster, but we are also expanding our global merchant base, all while improving our ability to generate greater free cash flow,” said president Harley Finkelstein. “As we lean into the new shape of Shopify, our focus remains on building the world’s best product to empower entrepreneurs and businesses everywhere.”

Aftahi gave his take on Shopify’s current valuation.

“SHOP trades at 11.5x EV/’23E Sales, relative to SaaS peers at 6.2x, although peers are projected to grow at an average topline rate of 14.3% y/y, compared to SHOP at 24.2% (which is comping against a 2022 business with logistics in it, which it has since divested). Overall SHOP is trading closer to its highest growth SaaS peers with mid- to high-20% growth. We believe given SHOP’s size, global scale, and dominant position in the omni-channel commerce space, that a premium multiple is warranted. Our $76 PT is based on 13.4x EV’23E sales.”