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As consumers increasingly turn to the internet for daily needs, the demand for digital services is skyrocketing. The e-commerce market is set to surpass $83.3 trillion by 2030, expanding at a compound annual growth rate of 18.9%, driven by rising internet access, increasing usage of smartphones, and advances like 4G and 5G.
Shopify Inc. (SHOP) is a top partner for online retailers, offering a range of essential services. While SHOP stock has dropped nearly 29% since setting YTD highs in February at $91.57, JPMorgan recently started coverage with an "Overweight" rating, calling the pullback an attractive entry point ahead of expected outperformance.
Earlier today, Citi analyst Tyler Radke upped SHOP’s price target to $96, calling the stock “a ‘downstream’ beneficiary of AI.” Meanwhile, National Bank analyst Richard Tse maintains the Street-high price target of $100. Can the underperforming growth stock reach that goal?
About Shopify Stock
Headquartered in Ottawa, Canada, e-commerce giant Shopify Inc. (SHOP) empowers businesses worldwide with its comprehensive suite of e-commerce solutions. Merchants can build, manage, and market their products through channels like web storefronts, mobile apps, social media, and physical retail locations. Shopify's platform integrates inventory management, order processing, payments, shipping, and customer relationship management, making it a versatile tool for small to large enterprises.
With artificial intelligence (AI)-driven features for automating tasks like product descriptions, Shopify supports businesses in scaling operations efficiently. The company caters to diverse needs with monthly subscription plans ranging from $39 to $2,300, tailored for small to medium-sized businesses (SMBs) and enterprises. Shopify's expansion into global markets through tools like Shopify Markets Pro underscores its commitment to enhancing merchants' reach and sales capabilities worldwide. Its market cap currently stands at $83.5 billion.
Shares of the e-commerce software platform have inched up by just 2.8% over the past 52 weeks, and SHOP stock is down 16.6% on a YTD basis. Shares gapped lower after Shopify's Q1 earnings report, which caused a sharp 18.6% collapse on May 8.
Shopify stock trades at 104.19 times forward earnings and 11.87 times sales. While not exactly a bargain, these valuations are below Shopify's own five-year averages, suggesting a potentially more attractive entry point for investors relative to historical premiums.
Shopify Sinks on Q2 Guidance
Shopify's Q1 earnings results on May 8 blew past Wall Street’s expectations. Revenue jumped 23.4% to $1.9 billion, slightly ahead of estimates, while adjusted EPS soared to $0.20, beating projections by 18%. Gross merchandise volume (GMV), the total value of the products sold during the quarter, climbed 23% to $60.9 billion, with $36.2 billion processed through Shopify Payments as Gross Payments Volume (GPV). Gross profit surged 33.5% to $957 million, and free cash flow margin doubled to 12%, showcasing Shopify’s impressive growth and operational efficiency.
During the quarter, Shopify made significant strides in international markets. They launched localized shipping brochures in Japan, Spain, and Italy, ensuring merchants could offer tailored experiences. Shopify also introduced its point-of-sale tools in Australia, broadening market access. A standout achievement was a 70% year-over-year increase in its markets product, making cross-border selling simpler. Shopify’s Markets Pro tool, now fully available in the U.S., helped brands like SuitShop and Beekman 1802 achieve impressive international sales growth.
While Shopify impressed with its Q1 earnings, the Q2 guidance was less rosy, causing shares to plunge. Management projects revenue growth in the high teens annually, translating to a low to mid-twenties year-over-year growth, factoring in the impact of selling its logistics businesses last year. Gross margin is expected to dip by 50 bps due to the expansion of its lower-margin payments business and lower revenue from a high-margin noncash partnership. However, this should be partially offset by new standard pricing changes and a shorter trial period.
Plus, stock-based compensation is pegged at $120 million, with capex around $5 million. Free cash flow margin is expected to mirror Q1, continuing its streak of double-digit free cash flow margins.
Analysts tracking Shopify predict its profit per share to surge by 144% to $0.61 in fiscal 2024, and then another 32.8% to $0.81 in fiscal 2025.
What Do Analysts Expect for Shopify Stock?
On June 11, JPMorgan analyst Reginald Smith kicked off coverage on Shopify with an “Overweight” rating and a $74 price target for December 2025, suggesting a 13.6% upside potential. Smith lauded Shopify's dominant position in e-commerce, serving over 2 million merchants across 175 countries. He praised Shopify's robust product suite, user-friendly platform, and vast scale as major strengths, predicting an 18% annual revenue growth through 2026 as Shopify rides the wave of online commerce expansion.
Given the recent dip in Shopify's stock price, JPMorgan sees it as a prime buying opportunity, reflecting confidence in the company's growth potential in the dynamic e-commerce market.
Analysts at Evercore ISI, led by Mark Mahaney, also see big opportunities ahead. Last week, he upgraded Shopify to “Outperform” with a $75 price target, highlighting successful efforts to attract enterprise clients like Mattel (MAT) and Steve Madden (SHOO), tapping into an $850 billion market.
Wall Street, though, has mixed views. In June, Moffett Nathanson downgraded Shopify to “Neutral” over valuation worries and customer acquisition costs. On the other hand, Wells Fargo (WFC) maintained its “Overweight” rating, confident in Shopify’s market share growth among larger merchants. Likewise, Goldman Sachs upgraded Shopify to “Buy,” impressed by the company’s promising marketing strategies.
Shopify has a consensus “Moderate Buy” rating overall. Of the 40 analysts covering the stock, 20 advise a “Strong Buy,” one gives a “Moderate Buy,” and the remaining 19 analysts are playing it safe with a “Hold.”
The mean price target of $75.99 suggests an upside potential of 16.6% from the current price levels. The Street-high target price of $100 for Shopify implies the stock could rally as much as 53.4%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
