Investing,com -- Shares of Shopify (TSX:SHOP) rose Tuesday after Redburn Atlantic upgraded its rating to 'buy.'
The upgrade comes as analysts forecast significant financial and market expansion for the company, largely driven by Shopify's leadership in the rapidly growing social e-commerce sector.
The core of this upgrade is Redburn Atlantic's revised price target of $99 for Shopify, indicating a notable 40% potential increase from its current share price of $72.
The optimism is fueled by the brokerage’s expectation of strong financial performance in the coming years.
Redburn Atlantic projects Shopify to achieve a 29% compound annual growth rate (CAGR) in net revenue from 2023 to 2026, with revenues expected to climb from $3.5 billion in 2023 to $7.6 billion by 2026.
Additionally, the firm forecasts a 40% EBIT margin by 2026, placing its projections 24% above consensus estimates for that year.
A key driver of Shopify’s expected success is its dominant role in the burgeoning social e-commerce space.
As social e-commerce continues to expand, Redburn Atlantic forecasts it will grow at 42% CAGR from 2023 to 2028, reaching an estimated $350 billion market by 2028.
Shopify, with its seamless integrations across major social media platforms and innovative tools like its Shop Pay button, is uniquely positioned to capture a significant portion of this market.
Unlike traditional e-commerce, social e-commerce leverages influencers, content creators, and direct engagement on platforms like TikTok, Instagram, Facebook (NASDAQ:META), and YouTube to drive purchases, creating new opportunities for impulsive and personalized consumer behavior.
Shopify’s competitive edge in social e-commerce is bolstered by several factors. The company’s deep integrations with the largest social platforms—TikTok, YouTube, Instagram, and more—allow merchants of all sizes to reach their target audiences efficiently.
Shopify's Shop Pay button, which facilitates a frictionless, one-click checkout experience, plays a crucial role in social shopping, where convenience and speed are key to converting browsing into purchases. This feature is particularly effective in driving impulse buying, a hallmark of social commerce.
Beyond its dominance in social commerce, Shopify's expansive ecosystem supports a diverse range of merchants, from small businesses to large enterprises.
Redburn Atlantic notes that Shopify's ability to serve businesses across this spectrum positions the company for continued market share growth.
As more businesses adopt Shopify’s platform, the company's gross merchandise volume (GMV) is expected to grow from $235.9 billion in 2023 to $464.8 billion by 2026.
This growth is expected to come not only from existing merchants but also from new enterprise clients, as Shopify’s platform becomes increasingly attractive to larger businesses.
Shopify is set to deliver strong earnings growth. Redburn Atlantic projects earnings per share (EPS) will rise from $0.73 in 2023 to $2.20 by 2026, as the company continues to capitalize on its leading position in the e-commerce market.
With this growth, Shopify’s P/E ratio is expected to decrease, making the stock more attractive to long-term investors.