RBC still loves Shopify

RBC Dominion Securities analyst Paul Treiber named Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP) one of his top picks for the quarter, citing resilient e-commerce spending, market share gains and the company’s growing AI opportunity.

Treiber maintained his “Outperform” rating and US$200.00 target on the Ottawa-based e-commerce company.

“We expect Q3 beat and raise,” Treiber said in his Oct. 26 report. “We believe Shopify’s Q3 results and Q4 guidance will exceed consensus by a similar magnitude as the TTM [trailing 12-month] average, driven by resilient U.S. e-commerce spending, continued market share gains, and cost discipline/operating leverage.”

Treiber said Shopify’s ability to sustain strong growth while improving profitability should support a higher valuation.

“With sustained strong growth and growing recognition as an AI winner, we expect Shopify’s valuation to continue re-rating higher,” he said.

Shopify’s fiscal second-quarter results, released Aug. 5, showed revenue increased 34% year-over-year to US$3.58-billion, while gross merchandise value (GMV) rose 32% to US$115.6-billion. Gross profit increased 31% to US$1.71-billion, while free cash flow climbed 55% to US$654-million, representing an 18% margin.

“This was a monster quarter: more than 30% growth in GMV AND revenue AND gross profit AND free cash flow,” Shopify president Harley Finkelstein said at the time. “We power every kind of business, and with AI, we’re expanding what’s possible for all of them.”

Chief Financial Officer Jeff Hoffmeister said growth was broad-based across merchant sizes, sales channels and geographic markets. “Alongside this momentum, we continue to drive operating leverage, which flowed through to 18% free cash flow margins,” Hoffmeister said.

For Q3, Shopify guided to revenue growth in the low-30% range and gross profit growth in the mid-to-high 20% range. The company also forecast operating expenses at 33% to 34% of revenue and a free cash flow margin in the high teens to low 20% range.

Treiber expects Shopify to exceed those expectations and deliver stronger-than-anticipated guidance for the fourth quarter.

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