Shopify Analysts: New Fulfillment Network Meets Demand For Two-Day Shipping

Canada-based Shopify Inc SHOP hosted its annual Shopify Unite conference in Toronto, and one of the more notable takeaways was the announcement of a $1-billion investment Wednesday to create a new network of fulfillment centers in the U.S.

The Analysts

KeyBanc Capital Markets' Josh Beck maintained an Overweight rating on Shopify with an unchanged $300 price target.

Credit Suisse's Brad Zelnick maintained at Outperform, unchanged $275 price target.

KeyBanc: Shopify Better-Positioned Against Amazon

Shopify's investment in fulfillment centers in the U.S. is seen as a move to help its smaller merchants compete on a more level playing field against Amazon.com, Inc. AMZN, Beck said in a Wednesday note.

Amazon has "influenced" consumers to expect speedy delivery options, and Shopify's investments should support two-day shipping options at affordable prices, the analyst said. 

Shopify CFO Russ Jones said during his presentation that the initiative will be cash neutral through 2023, Beck said. Over the near-term, incremental revenue will be offset by the incremental costs of managing a new supply chain infrastructure, he said. 

Credit Suisse: 'Meaningful Offering'

Shopify's fulfillment network should be able to handle two-day delivery options across 99% of the continental U.S., Zelnick said in a Wednesday note.

The "meaningful offering" will bring three benefits to Shopify, the analyst said:

• A new value-added proposition for merchants to better compete against Amazon without new working capital.
• An increase in overall take rate.
• More reason for merchants to remain on the Shopify platform. 

Shopify also introduced redesigned point-of-sale software that will be targeted at all brick-and-mortar merchants rather than those on its online platform, giving the company a new venue to generate offline revenue, according to Credit Suisse. 

Price Action

Shopify shares were up 1.1% at $330.90 at the time of publication Thursday. 

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Shopify Chief Product Officer Craig Miller announces the company's fulfillment network at the Shopify Unite conference in Toronto on June 19. Courtesy photo.