Oh my, Shopify!

Don’t call it a comeback.

Okay, nevermind, you can call it a comeback. It has certainly been a while since we have seen Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP) at the top of every business page, and the post-Q3 performance of the stock has been a punctuation mark on that.

On November 12, SHOP reported its Q3, 2024 results. The company posted Operating Income of $283-million on revenue of $2.16-billion, a topline that was up 26% year-over-year.

“Q3 was outstanding, further establishing Shopify as a leader in powering commerce anywhere, anytime. Our unified commerce platform is becoming the go-to choice for merchants of all sizes,” said President Harley Finkelstein. “As the busiest shopping season of the year for our merchants approaches, they trust Shopify to provide the tools, unmatched speed, and reliability to maximize their success.

Roth MKM analyst Darren Aftahi is a keen observer of SHOP, and he shared his thoughts in a research update to clients entitled “Oh My, Shopify”.

“SHOP put up yet another quarter of over 20% y/y revenue growth, accelerating ~60bps y/y to ~26% while FCF margins expanded ~340bps y/y to 19.5%. 4Q guidance implies further acceleration in revenue with FCF margins similar to 4Q23 (20%). 3Q also put SHOP back above the Rule-of-40 threshold at ~46, where 20%+ top-line growth in 4Q and FY25 and stable FCF margins going forward should keep it at or above that threshold for the next 5-6 quarters. We remain encouraged with the growth outlook as SHOP continues to expand with international growth outpacing North America (+36% y/y International growth) and up to 30%+ of sales. Additionally, B2B has expanded, growing GMV over 145% in 3Q, and SHOP has begun to capture new verticals like automotive and industrials, unlocking new corners of commerce, and continues to attract a broad range of merchants (and merchant sizes) to the platform. SHOP is also doing this while consistently adding new products and features to add to its stickiness and winning over competitor partners. Beyond that, its roster of enterprise clients continues to grow, with management reiterating that 2025 should serve as a much more impactful year for this segment given implementation and sales cycle times.”

In the November 12 update, Aftahi maintained his “Buy” rating and raised his price target on SHOP from $92.00 to $135.00.

The analyst thinks SHOP will post EPS of $1.20 on revenue of $8.78-billion in fiscal 2024. He expects those numbers will improve to EPS of $1.61 on a topline of $10.6-billion in fiscal 2025.

“While we questioned SHOP’s ability to maintain growth with current margins, it has realized material efficiencies with AI and other cost savings (support and non-performance marketing), that allow for sustained growth and stable FCF margins going forward, an impressive mark given its size and expectations. On revised estimates (upward), we move our PT to $135 (up from $92), which implies 16.2x EV/’25E sales of $10.6B,” Aftahi added.