Shopify’s dominance is far from over, this analyst says

National Bank Financial analyst Doug Taylor raised his target on Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP) to US$185.00 from US$180.00, arguing that the Ottawa-based e-commerce company’s strong revenue growth outweighs near-term margin pressure following its third-quarter results.

In a Nov. 5 report, Taylor maintained his “Outperform” rating, positing that the stock’s decline following the Nov. 3 earnings release reflected high investor expectations rather than a deterioration in Shopify’s growth prospects.

“Our increase in our target price … is deliberate as we think sustaining aggressive growth outweighs a minor near-term margin reset,” Taylor said. “We believe the share price reaction (down 5% as of writing) reflects lofty expectations vs. a deterioration in Shopify’s financial profile/prospects and therefore represents an interesting entry point.”

Shopify reported third-quarter revenue growth of 32% year-over-year, while gross merchandise volume (GMV), representing the value of goods sold through its platform, reached approximately US$119-billion. The company also generated a free cash flow margin of 22%, demonstrating its ability to convert a substantial portion of revenue into cash while continuing to invest in growth.

Chief financial officer Jeff Hoffmeister said the results demonstrate the strength of Shopify’s business model. “We extended our track record of consistent execution, with 32% revenue growth and a 22% free cash flow margin,” Hoffmeister said.

Taylor said the company’s continued revenue growth supports a higher valuation despite expectations for some near-term pressure on profitability.

Shopify expects fourth-quarter revenue to increase at a low-30% rate year-over-year, while gross profit is projected to grow at a high-20% rate. The difference reflects a greater contribution from lower-margin Merchant Solutions revenue and continued investment in the company’s platform.

Management expects operating expenses to represent 29% to 30% of revenue during the quarter, with stock-based compensation of approximately US$155-million. Shopify also expects its fourth-quarter free cash flow margin to remain consistent with the same period in 2025.

The company continues investing in artificial intelligence and new shopping channels as consumers increasingly use AI-powered tools to discover and purchase products. Shopify president Harley Finkelstein said the company is positioning its platform to support those changes while serving its existing merchant base.

“We powered $119 billion in GMV, while continuing to build commerce into every surface, every agent, and increasingly, everywhere,” Finkelstein said.

The analyst believes Shopify’s ability to sustain revenue growth above 30% is more important to its longer-term valuation than temporary fluctuations in operating margins. However, he reduced the valuation multiple applied to his forecast to reflect the near-term profitability pressure.

“We maintain an Outperform rating while our new target reflects 10.0 times (from 10.5 times) NTM+1 Sales given the temporary margin pressure,” Taylor said.

The revised target reflects a lower sales multiple applied to Shopify’s expected revenue approximately one year beyond the next 12 months.

Taylor said the recent share price decline offers investors an opportunity to gain exposure to Shopify’s continued expansion in global e-commerce and emerging AI-driven shopping channels.

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