Shopify Inc (NYSE: SHOP) surged after beating fourth-quarter estimates in gross merchandise volume (GMV), subscription revenue, merchant services revenue, and operating income. The company’s 47% total revenue growth represented its first quarter-over-quarter acceleration since 2013, while the take rate recorded its largest expansion since 2015.
"While there may be some pushback that MRR (monthly recurring revenues) growth continues to decelerate, we view revenue diversification and higher take rate as net positives," Baird analyst Colin Sebastian wrote in a note. "In fact, a number of these revenue streams generate higher margins than core subscription services."
Shopify Earnings Reactions
Baird attributed the general outperformance to holiday GMV growth, broad Merchant Solutions adoption and mid-market penetration of Plus.
"We believe these results support our bullish view of Shopify and its massive e-commerce platform opportunity, deserving of a premium valuation," Sebastian wrote.
Wells Fargo anticipates a similar view across the Street.
"While shares trade at a premium to the high growth software peer group (22x EV/S), we believe that sentiment and business momentum remain positive, given the track record of outperformance, upside in the payment takerate/penetration and growth potential in markets such as France, Germany and Japan, which contribute less than 5% of revenue," analyst Timothy Willi wrote.
KeyBanc anticipates increased momentum in small business and direct-to-consumer channels but lowered its operating-income expectations to account for Shopify Fulfillment and 6 River Systems ramps and increased investments in international, Shopify Plus, and point-of-sale tech.
"We endorse the increased investment strategy provided the momentum in the business and encouraging cohort economics that indicate a growing contribution from new cohorts plus positive net revenue retention from previous cohorts," analyst Josh Beck wrote.
Credit Suisse was less enthused about the investments and called attention to near-term limits on operating leverage.
"Not only is Shopify highly leveraged to increasing ecommerce penetration, but its solution suite in turn helps to accelerate e-commerce adoption (along with wallet share), thus creating flywheel effects," analyst Brad Zelnick wrote. "While SFN could drive revenue and gross profit upside in years to come, these offerings remain nascent and could take longer than expected to generate meaningful revenue."
Zelnick’s primary concerns are valuation and baked-in expectations, as well as D2C risk and perceived marketing needs to maintain merchant growth. He concedes confidence in management as well as a positive view of Shopify’s long-term opportunity, particularly considering its fundamentals.
"We firmly contend Shopify is a great business and has one of the largest TAMs in our coverage universe," Zelnick wrote.
Baird maintained an Outperform rating and raised its price target from $465 to $590;
Credit Suisse downgraded the stock to a Neutral rating but raised its target from $450 to $575;
KeyBanc maintained an Overweight rating and raised its target from $485 to $575;
Wedbush maintained a Neutral rating but raised its target from $325 to $475; and
Wells Fargo maintained an Overweight rating and raised its target from $400 to $600.
Wedbush remained on the sidelines, citing limited room for multiple expansion after the stock’s 200% run in 2019.
"We continue to view Shopify as a quality name with a compelling growth outlook, with the roll-out of the company’s ecosystem set to drive meaningful share gains in ecommerce spend," Wedbush analyst Ygal Arounian wrote.
Shopify's stock traded around $541 per share at time of publication.
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