On Friday, Evercore ISI raised its rating for Shopify (TSX:SHOP) (NYSE: NYSE:SHOP) stock from In Line to Outperform, setting a new price target of $75.00. The upgrade comes as the firm recognizes an opportunity following a significant drop in Shopify's stock price, which has fallen approximately 30% from its 52-week high.
The firm cites several reasons for the optimistic outlook on Shopify. The e-commerce platform is seen as a leader in a vast total addressable market (TAM) estimated to be around $850 billion.
Shopify's competitive edge and potential for growth in the upscale market segment were highlighted, supported by recent channel checks. Additionally, a consistent record of product innovation was noted, particularly in the rising Attach Rate, which measures how many additional services customers use.
Shopify's financial prospects were another key factor in the upgrade. The firm projects that Shopify's free cash flow (FCF) margins, currently at 12%, could increase to high-teen levels by 2026. This prediction is based on the company's ability to continue improving profitability over the next few years.
The firm also addressed concerns over Shopify's operating margin, which had been underwhelming in the last two earnings reports, leading to significant adjustments in both share price and earnings estimates.
However, these adjustments are now seen as having reduced the risks associated with investing in Shopify. The current estimates for Shopify's operating and FCF margins are considered reasonable by the firm.
Lastly, the firm expressed approval of Shopify's strategic marketing decisions. The company's move to intensify its use of social media marketing to boost international growth aligns with observed trends in internet advertising and is deemed both tactically and strategically sound. This approach is expected to contribute positively to Shopify's expansion and overall performance in the market.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.