Goldman Sachs Sees Shopify Turning From A 'Tool' To A 'Platform'

Goldman Sachs’ Jesse Hulsing believes that Shopify Inc SHOP is well positioned to become the leading platform for SMB commerce, leading to sustained gross addition growth and rising share of the customer’s wallet.

Hulsing initiated coverage of the company with a Buy rating and price target of $53.

Revenue Efficiency

“We also believe SHOP can maintain its software leading revenue efficiency as it layers in additional services that can be sold into its customer base with a higher contribution margin,” the analyst mentioned.

Hulsing expects Shopify to deliver revenue CAGR of 55 percent through CY2018, with operating margins of 5.4 percent by CY2018.

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Market Penetration

The analyst believes the company has achieved single digit penetration of its addressable market and is likely to generate gross additions CAGR of 32 percent during FY15-FY18, with 8-10 percent penetration of the 4nm to 5nm addressable merchants worldwide by the end of FY16.

“We view SHOP’s offering as distancing itself from its competitors due to a combination of a growing suite of integrated services, emerging data network effects, and a large partner ecosystem,” Hulsing stated.

The analyst expects the company to grow its merchant base from 243,000 at the end of FY15 to 750,000 at the end of FY18.

In addition, Hulsing estimates that Shopify would see total revenue opportunity of close to $3,000 per year per merchant, as compared to $1,000 per year per average merchant as of FY15.

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