On Tuesday, Piper Sandler reiterated a Neutral rating for Shopify (NYSE: NYSE:SHOP), with a price target set at $94.00. The firm's analysis focused on the recent questions surrounding Shopify's partnership with PayPal (NASDAQ:PYPL) and the effects of revenue reclassification on the company's financial outlook. The analyst addressed investor curiosity about the extent of PayPal's contribution to Shopify's anticipated growth in the fourth quarter.
Shopify's guidance suggests a notable acceleration in the fourth quarter. Piper Sandler's assessment involved two key considerations: the assumed take-rates before and after the revenue reclassification and the proportion of transactions facilitated by PayPal across Shopify's merchant base. The firm employed a methodical approach to estimate the impact, analyzing web traffic at 20 Shopify merchants, including both mid-scale and established brands, using PayPal.com redirection as an indicator of PayPal transaction volume.
The conclusion drawn from this analysis is an estimation that the reclassification associated with PayPal will have a low single-digit (LSD) impact on Shopify's growth, roughly 3% by the firm's best estimate. This figure was derived from a careful examination of the available data and represents the firm's effort to quantify the partnership's influence on Shopify's performance.
As part of their ongoing coverage, Piper Sandler's commentary sheds light on the intricacies of Shopify's financials as they relate to strategic partnerships and accounting practices. The $94.00 price target remains unchanged, reflecting the firm's current valuation of the e-commerce platform's stock. The neutral stance indicates a wait-and-see approach, as further developments and results may influence future assessments of Shopify's market position and financial health.
In other recent news, Shopify has experienced substantial growth in its recent financial performance. Following the third-quarter earnings report, several firms have adjusted their price targets for the company. Piper Sandler raised its target to $94, maintaining a Neutral rating, while Truist Securities increased its target to $110, also holding a Neutral stance. Loop Capital followed suit, lifting its price target to $110. Scotiabank (TSX:BNS) analyst Kevin Krishnaratne raised the price target to $115 with a Sector Perform rating, and Oppenheimer maintained a positive outlook, raising the target to $130 while keeping an Outperform rating.
Shopify's third-quarter earnings report revealed a 26% increase in revenue, surpassing analysts' predictions, largely due to a robust 24% growth in Gross Merchandise Volume (GMV). Operating income more than doubled from the previous year, and the free cash flow margin expanded to 19%. Looking ahead, Shopify's fourth-quarter projections indicate an acceleration of top-line growth to the mid- to high-20% range, partly due to a new partnership with PayPal. The company also reported an impressive 35% growth in the Europe, Middle East, and Africa (EMEA) region.
InvestingPro Insights
Shopify's financial metrics and market performance offer additional context to Piper Sandler's analysis. According to InvestingPro data, Shopify's revenue growth remains strong, with a 23.47% increase over the last twelve months and a 26.14% quarterly growth in Q3 2024. This aligns with the analyst's focus on the company's anticipated growth acceleration.
InvestingPro Tips highlight that 25 analysts have revised their earnings upwards for the upcoming period, suggesting positive sentiment that complements Piper Sandler's neutral stance. Additionally, Shopify's net income is expected to grow this year, which could potentially impact future valuations.
The company's P/E ratio of 99.35 and adjusted P/E of 123.17 for the last twelve months indicate a high earnings multiple, reflecting investor expectations for future growth. This valuation metric ties into Piper Sandler's price target considerations.
For investors seeking a more comprehensive analysis, InvestingPro offers 21 additional tips for Shopify, providing a deeper dive into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.