Bank of America analysts upgraded Shopify (NYSE:SHOP) to a Buy rating and raised its price target for the stock to $82 from $78 in a note Tuesday, citing solid growth and free cash flow (FCF) conversion.
The bank said that under the guidance of new CFO Jeff Hoffmeister, Shopify has made strides in achieving balanced growth and margin improvements.
Analysts forecast solid revenue growth driven by high single-digit baseline eCommerce growth, steady market share gains, and disciplined expense management.
In addition, they note that Shopify's Gross Merchandise Volume (GMV) has consistently outpaced eCommerce growth, with a compound annual growth rate (CAGR) of +25% over the past three years, more than double the industry rate.
In 2023, Shopify captured a 4.9% share of the global eCommerce market, up from 1.2% in 2017. The firm attributes this growth to Shopify's competitive advantages, including a robust installed base of 2.5 million merchants, a comprehensive ecosystem of over 2,500 partners and 8,000+ apps, and a platform that integrates eCommerce and payments.
Looking ahead, analysts project Shopify's operating margin to increase to 17.4% by FY26, up from 14.3% in FY24. They also foresee normalized product mix and stable gross margins after years of decline.
Furthermore, Shopify's commitment to "disciplined, limited headcount growth" is expected to enhance operating leverage. In an upside scenario, the firm estimates FY30 revenue to reach $29.4 billion (+22% CAGR) and FCF to hit $8 billion (+33% CAGR).
The revised $82 price objective suggests a 28% return potential.
While not directly tied to Q2 results, analysts note that Shopify is well-positioned to capture a larger share of the eCommerce market, achieving better scale and FCF conversion. The new PO is based on 56x FY25e FCF, reflecting a premium to large-cap peers due to Shopify's longer runway for sustained FCF growth.