On Thursday, BofA Securities revised its price target for Shopify (NYSE:SHOP) shares, a leading e-commerce platform, reducing it to $78 from the previous $92, while maintaining a Neutral rating on the stock.
The adjustment comes amid ongoing macroeconomic pressures affecting Shopify's Gross Merchandise Volume (GMV) and the company's gross margin being squeezed by its lower-margin payments business.
The firm noted that the challenges facing Shopify's GMV show no signs of abating. With the payments segment continuing to impact gross margins negatively and Shopify's restrained investment in growth areas beyond payments, the firm anticipates that the current dynamic is unlikely to change in the short term.
Despite Shopify's shares appearing relatively inexpensive for a software stock, trading at 7.4 times its estimated 2025 revenue compared to 8.7 times for other large-cap software companies, BofA suggests that when compared to payment stocks, which trade at 6 times, Shopify's valuation seems more complete.
The reiteration of the Neutral rating by BofA Securities comes with a lowered price objective, now set at $78, reflecting concerns over gross margin pressure and near-term macroeconomic headwinds.
The new price target is based on a 9.4 times multiple of Shopify's estimated 2025 Enterprise Value to Sales, which has been reduced from the prior multiple of 10.4 times. This valuation is in line with that of the larger cap software group, adjusted for growth.
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