Shopify Posted Blowout Earnings. Here’s What Wall Street Is Saying. – Barron’seCommerce
The quarter demonstrated the acceleration of e-commerce adoption in the Covid-19 pandemic, the kind of massive outperformance rarely seen. It was along the lines of the astonishing April quarter earnings report from Zoom Video Communications, or the eye-popping March quarter subscriber growth from Netflix.
In case you missed it: Shopify (ticker: SHOP) posted revenue of $714.3 million, up 97% from a year ago, and adjusted profits of $1.05 a share. The Street had been projecting $508.6 million and a penny a share. Gross merchandise value was $30.1 billion, up 119%.
So, you might be wondering, why is the stock retreating on Thursday?
Well, here’s the thing. At least 14 analysts raised their targets on the stock this morning, and everyone was duly impressed with the quarter. But of those 14 analysts, just four are actually recommending the stock. And the primary issue simply remains valuation. Even with the strong performance, this is one pricey stock. Shopify on Thursday fell 3% to $1,021.74 in recent trading.
Canaccord Genuity analyst David Hynes, Jr., nicely captures the conundrum that analysts face. He upped his target on the stock on Thursday to $1,000 from $700, but maintains a Hold rating. As good as the quarter was, he can’t bring himself to recommend buying Shopify at this level.
“Shopify was pricing in a pretty epic beat, and boy, did the firm deliver,” he writes in a research note. “ What was strikingly clear from this report is that commerce has shifted online in a major way, a trend that may normalize but is unlikely to reverse, and Shopify is clearly the leader in the space.”
He expects “several more years of compelling growth,” but that doesn’t mean he thinks you should buy the stock at current levels. “In terms of the stock, we very clearly ejected from the Shopify rocket ship too early,” a reference to his Shopify downgrade in April. But he stands by his Hold stance, especially since the stock trades at 36.5 times enterprise value to revenues on calendar 2021 earning.
Many other analysts express a similar level of caution.
“Overall, we remain encouraged by Shopify’s core strengths, which are bolstered by accelerated structural tailwinds, though we believe that Shopify’s premium valuation already reflects this upside,” writes Wedbush analyst Ygal Arounian, who has a Neutral rating on the stock.
SunTrust Robinson Humphrey’s Terry Tillman notes that the company has the highest out-year revenue multiple of any other software company he follows, trading at 43 times his 2021 revenue forecast, above Datadog (DDOG) at 38 times and Coupa Software (COUP) at 34 times. He ups his target to $1,100 from $700, but maintains his Hold rating.
Citi’s Walter Pritchard likewise ups his target to $1,200 from $998, but stays Neutral on the on the stock. “While we appreciate the magnitude of the TAM [total addressable market], an acceleration of secular tailwinds coming into focus, a strong management team and record of execution, we believe much of this is priced in at the current multiple,” he writes.
RBC Capital’s Mark Mahaney, on the other hand, is sticking with his Outperform rating. He upped his target to $1,250 from $1,000.
“When Q2 [earnings] season is said and done, Shopify is likely to have had among the largest upwards estimates revisions across Tech,” Mahaney writes. “Why? Because it is fully participating in the Covid-powered online retail structural acceleration at the same time that direct-to-consumer retail is inflecting up and at the same time that Shopify is gaining real traction with a series of new products and solutions …Valuation here is at a high premium. But growth rates are too.”
Write to Eric J. Savitz at firstname.lastname@example.org