Proactive Investors - Analysts at Canaccord Genuity (TSX:TSX:CF, LSE:CF) Group Inc raised their price target on Shopify Inc (TSX:SH., NYSE:TSX:SHOP) shares to $45, while maintaining their “hold” rating on the e-commerce company after it issued lighter-than-expected guidance for the current quarter.
Shopify reported revenue for the fourth quarter of US$1.7 billion, up 26% compared to the same period in 2021, and slightly exceeding consensus expectations.
“Shopify shares traded lower after-hours on what we thought was a pretty solid print – merchant subscription revenue (MRR) was in line with our estimate, Gross Merchandise Volume (GMV) came in above expectations, which in combination drove 28% cFX growth, and the firm generated both cash (excluding merchant cash advances) and adjusted operating profits in the quarter,” Canaccord’s analysts said in a note to clients.
Shopify shares, which fell on Wednesday evening, plunged over 16% to $44.75 on the New York Stock Exchange by noon on Thursday.
“It’s hard to pinpoint what exactly is driving the stock price weakness, but we suspect it’s some combination of a strong run up into the print, high-level Q1 guidance that implies slightly-below-Street growth and a return to losses, and lingering uncertainty around big-picture items like SFN investments and the health of consumer spend,” said the analysts.
Canaccord noted that there should be “no doubts” when it comes to innovation that “Shopify is delivering,” and the firm’s “dominant standing at the low end of the market.”
“In our view, this remains an extremely well-positioned business,” said the analysts.
Still, Canaccord believes that Shopify shares are “pretty expensive at ~9.5x EV/R” for a business that’s growing roughly 20% with sub-50% gross margins.
“We expect there to be some acceleration in growth this year as price increases play out and volumes start to ramp on SFN (driving GMV take rates higher). Perhaps the stock is already pricing in that improvement, or maybe we’ll get a chance to buy SHOP cheaper between now and then,” said the analysts.
Valuation and price target
“For now, our bet is on the latter, which is the basis of our valuation-based Hold. We’ll wrap up by reiterating our view that e-commerce is a secular growth space and that we continue to believe Shopify is the pedestal company at the low end of the market.”
Canaccord said it was content waiting for a better entry point, but it did raise the price target on Shopify’s shares.
“We are raising our price target from $40 to $45, which is based on a ~8x EV/revenue multiple applied to our updated C2023 estimate of $6.7B plus,” said the analysts.