Shopify’s (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP) stock slide has created a buying opportunity, says ATB Capital Markets analyst Martin Toner, who upgraded the stock to “Outperform” and raised his price target to $160.00 following strong Q1 results and resilient growth guidance.
Shopify reported $2.36-billion in revenue for Q1, up 26.8% year over year, slightly ahead of expectations. While gross margins dipped, free cash flow remained strong, and management guided to mid-20% revenue growth for Q2, easing concerns around tariffs and macro uncertainty.
“SHOP’s Q1 results and Q2 guidance showcased that the company’s growth story is intact despite recent macro uncertainty,” Toner said in his May 8 company update. “Q1/25 GMV grew 23% y/y, in-line with Q1/24’s growth figure. The strength in GMV was driven by same-store sales growth, global merchant base expansion, 36% GMV growth in Europe, and 23% growth in offline GMV, primarily from larger retailers adopting Shopify’s POS solutions. Merchant Solution’s growth of 29% y/y was driven by GMV growth and improvements in penetration of payments.
“Shopify reported payments penetration of 64%, up from 60% in Q1/24. Monthly recurring revenue (MRR) grew 21% Y/Y in the quarter, and SHOP reported MRR growth across each of its Standard, Plus, and Offline/POS segments. Offline GMV saw 23% y/y growth, with B2B GMV increasing “triple digits” y/y, posting three consecutive quarters of triple-digit growth. Overall, we continue to see strong operating momentum in the business; FCF margin is up over 300bp y/y, and the company has seen eight consecutive quarters of 20+% revenue growth and seven consecutive quarters of double-digit FCF margin.”
Toner sees Shopify’s recent stock decline as a compelling entry point, arguing the company is growing into its valuation as margins expand and free cash flow strengthens.
“We believe Shopify is growing into an attractive profit multiple and its valuation as its margins ramp,” he said. “Given the recent sell-off in SHOP, our target price implies 22% upside, justifying our Outperform rating. We forecast FCF margins improving from the high teens in 2024 to ~29% in 2033, which we believe is a realistic number given the company’s gross margins in the low 50%’s and the need for ongoing sales and marketing spending and research and development.
“While Shopify has a large TAM and an excellent track record of developing and delivering new products to its merchants that help grow share of the TAM, 2033 GMV of $1.4tr builds in tremendous success for Shopify’s model.”
Toner expects Shopify to generate $1.33-billion in adjusted EBITDA on $10.94-billion in revenue for fiscal 2025. He projects those figures will improve to $1.69-billion in adjusted EBITDA on $13.13-billion in revenue in 2026.
Concerns over U.S. tariff policy changes drove a sharp pullback in Shopify stock earlier in the year. However, Toner noted management’s reassurance that “only about 1% of GMV is exposed to China-related de minimis exemptions,” and no material impact was seen in April or early May.
Toner said Shopify believes that the diverse merchant base across geographies and verticals and a buyer demographic skewing toward higher-income consumers could insulate it from significant disruptions.
“SHOP has also been proactive in introducing tools to help merchants navigate tariff uncertainty,” he said. “For instance, SHOP has introduced tools like Tariffguide.ai, duty-inclusive pricing, and enhanced Managed Markets to help merchants quickly adapt.”
On Shopify’s May 8 results call, company President Mr. Harley Finkelstein said: “And one thing that I think you, most of you have come to understand, or all of you, is that Shopify was absolutely built for times like this, times where things seem uncertain or unclear. This is when we thrive; whether it was 2008, whether it was the pandemic, or right now, Shopify was absolutely built for agility.
“And I think these days for us are just like anything else. And our objective in these times is to shoulder complexity so our merchants don’t have to. It’s how we build so much trust, and it’s why I think our merchants are so damn resilient.”
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About The Author /
Rod Weatherbie is a journalist based in Prince Edward Island. Since 2004, he has written extensively about the Canadian property and casualty insurance landscape. He was also a founder and contributing editor for a Toronto-based arts website and a PEI-based food magazine. His fiction and poetry have been featured in The Fiddlehead, The Antigonish Review, and Juniper.
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