Shopify has the pedal to the metal, National Bank says

Following the company’s second quarter results, National Bank Financial analyst Richard Tse remains bullish on Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP).

On August 2, Shopify reported its second quarter results. The company returned to profitability with Adjusted Operating Income of $146-million with revenue that grew by 31 per cent, year-over-year.

“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.”

Tse says SHOP has the pedal to the metal right now.

“Consistent with our preview, Shopify reported solid FQ2 results,” the analyst said. “That performance was driven by revenue growth of 31% Y/Y (+31% CC; +28% organic); significantly outpacing last year’s (FQ2’22) growth rate of 15.7% despite the higher revenue base. Notably, the Company returned to profitability with Adj. Operating Income of $146 mln, representing a 9% margin (+1,110 bps Q/Q; +1,223 bps Y/Y). With respect to the KPIs, they were equally solid, with take rate expanding 29 bps Y/Y, Shopify Plus represented 29.5% of MRR (-190 bps Y/Y), with continued strength internationally. We believe the Y/Y decline in Plus MRR as a percentage of total MRR reflects the mix care of the 33% price hike on lower-tiered subscription plans (i.e., non-Plus plans) in April.”

In a research update to clients on August 2, Tse maintained his “Outperform” rating and one-year price target of (US) $80.00 on Shopify, implying a return of 28.1 per cent at the time of publication.

Tse thinks SHOP will post Adjusted EBITDA of negative $891.4-million on revenue of $6.85-billion in fiscal 2023. He expects those numbers will improve to EBITDA of positive $809.6-million on a topline of $8.03-billion the following year.

“Bottom line,” said Tse, “Shopify continues to fortify its moat with new features like its upcoming AI offerings (starting with Sidekick assistant) while expanding into net new market opportunities like B2B. In addition, the Company is taking a more disciplined approach to capital allocation which has the potential to generate significant operating leverage moving forward. Finally, we believe the outlook appears conservative relative to our expectations. We reiterate our Outperform rating and US$80 target.”