Shopify earns target raise at ATB Capital

Following the company’s fourth quarter results, ATC Capital analyst Martin Toner has raised his price target on Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP).

In the fourth quarter, SHOP produced Gross Profit Dollars of $1.1-billion on revenue of $2.1-billion, a topline that was up 24 per cent over the same period a year prior.

“Our GMV [gross merchandise volume] growth accelerated in Q4 and for all of 2023, which powered Shopify’s strong financial results. In Q4 we delivered year-over-year revenue growth of 24 per cent, which represents 30-per-cent growth when adjusting for the sale of our logistics businesses, and achieved an operating income margin of 13 per cent and a free cash flow margin of 21 per cent,” said CFO Jeff Hoffmeister. “For 2024, we look to build on the momentum that we achieved in 2023 and continue to deliver a strong combination of both top-line growth and profitability.

In a research update to clients February 13, Toner summarized the quarter and explained why he has raised his price target on the stock.

“Before market open on February 13, Shopify reported Q4/23 consolidated revenue of $2,144mm (+24% y/y), beating consensus of $2,084mm. Shopify’s merchants generated $75.1bn (+23% y/y) of gross merchandise volume (GMV), beating consensus of $72.5bn and representing the fifth consecutive quarter of accelerating growth. Merchant solutions revenue grew 21% to $1,619mm, beating consensus of $1,582mm. Gross margin of 49.5% represented a 350bp y/y improvement, but missed consensus by 70bp. Adjusted operating income of $396mm beat consensus of $389mm, and adjusted EPS of $0.34 beat consensus of $0.30,” the analyst explained. “Management provided Q1/24 revenue growth guidance at a low-twenties percentage rate, and expects Q1 gross margin to increase 150bp q/q. Q1/24 operating expenses are expected to increase at a low-teens percentage rate q/q, and FCF margin is expected to be in the high-single digits, with sequential improvement every quarter. Despite posting a top and bottom-line beat, along with healthy top-line guidance, we believe the share reaction post-earnings was due to a combination of heightened investor expectations heading into the print, along with a surprising pivot from the Company to increase investment into growth in 2024. Due to a combination of rolling the time period of our DCF forward and higher gross profit, driven by higher subscription revenue growth, we are raising our target price by $5.00, to $110.00.”

Toner maintained his “Sector Perform” rating on SHOP.