On Thursday, Scotiabank adjusted its outlook on Shopify (NYSE:SHOP), increasing the price target to $80 from the previous $75, while maintaining a Sector Perform rating. The adjustment follows recent U.S. Census Bureau data indicating Q3 retail spending trends surpassed consensus expectations, potentially signaling an upside risk to both the firm's and Street estimates for Shopify's Gross Merchandise Volume (GMV). Analysts project a 21.7% year-over-year growth in GMV for Shopify, which could lead to higher-than-anticipated merchant solutions revenue.
Shopify has consistently outperformed consensus merchant solutions revenue by 2% over the past three years. The focus now turns to the company's operating leverage and free cash flow, especially since Q2 results demonstrated a significant margin beat, with margins reaching 16.3% compared to the Street's 12.7% expectation. The consensus for Q3 is set at 17.2%.
The report also highlights Shopify's historical performance leading up to Black Friday/Cyber Monday (BFCM), noting that the stock has typically seen an average increase of 7% in the 15 trading days through Black Friday from 2016 to 2023. Despite recent momentum driving the stock to trade at 8.3x next twelve months (NTM) Enterprise Value/Sales, which is above the summer's trading band of approximately 6.0x to 8.0x, it remains below the highs of over 10.0x earlier in the year.
The revised $80 price target is based on a 9.0x CY25 Enterprise Value/Sales ratio, or approximately 17.0x Enterprise Value/Gross Profit, up from the prior 16.5x. This valuation reflects an anticipation of continued positive performance as the company approaches the BFCM period, which has historically been a strong time for Shopify's stock.
In other recent news, Shopify has been the subject of numerous analyst assessments following robust third-quarter performance and positive merchant growth trends.
RBC Capital raised its price target for Shopify to $100, maintaining an Outperform rating due to a robust third-quarter performance and potential growth in Monthly Recurring Revenue (MRR). Loop Capital also increased its price target, citing positive merchant trends from a recent survey.
Barclays maintained an equal weight rating on Shopify, projecting twice the rate of global e-commerce growth for the company's Gross Merchandise Volume (GMV) and noting an improvement in Shopify's free cash flow margin. Piper Sandler reiterated a Neutral rating on Shopify, indicating a flat quarter-over-quarter gross payment volume based on their analysis of Shop Pay trends.
Baird increased the price target on Shopify shares, maintaining its Outperform rating based on favorable trends observed in a recent e-commerce platform survey. Lastly, Citi updated its outlook on Shopify, increasing the price target while sustaining a Buy rating on the stock, driven by the potential for revenue growth and profitability in the latter half of 2024 and into 2025.
InvestingPro Insights
Recent InvestingPro data aligns with Scotiabank's optimistic outlook on Shopify. The company's market cap stands at an impressive $102.9 billion, reflecting its significant presence in the e-commerce sector. Shopify's revenue growth of 23.18% over the last twelve months as of Q2 2024 supports the analyst's projections of strong Gross Merchandise Volume (GMV) growth.
InvestingPro Tips highlight Shopify's financial strength and market position. The company is expected to see net income growth this year, and it's trading at a low P/E ratio relative to near-term earnings growth, which could indicate potential upside. This aligns with Scotiabank's increased price target and the historical pre-Black Friday/Cyber Monday stock performance mentioned in the article.
Shopify's strong return over the last three months (34.4%) and one year (52.17%) further reinforces the positive momentum discussed in the report. The company's ability to exceed consensus merchant solutions revenue consistently, as noted in the article, is reflected in its robust financial metrics.
For investors seeking a deeper understanding of Shopify's potential, InvestingPro offers 13 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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