Shopify Downgraded At Morgan Stanley After Shares Rise 70%

Following the 70 percent year-to-date appreciation in the share price of Shopify Inc SHOP, Morgan Stanley’s Brian Essex believes the risk-reward is now balanced.

Essex downgraded the rating on the company from Overweight to Equal Weight, while raising the price target from $37 to $47.

Solid Execution

The analyst believes the share price appreciation was driven by robust execution, with Shopify having been able to grow revenues over 90 percent with more than 100 percent GMV growth over the past 3.5 years.

Related Link: Macquarie Analyst Lists Competitive Advantage Of Shopify

“Following this pattern, the company delivered another beat and raise quarter in 2Q, reporting revenue growth of 92.9 percent y/y in 2Q, with upside vs. guidance driven by strong merchant adds and subscription pricing tailwinds,” Essex mentioned.

GMV also beat expectations, with growth accelerating to 106 percent year-on-year and payment volumes processed crossing the $1 billion mark during Q2.

Channel Checks

Morgan Stanley’s survey of Shopify Experts indicated that revenue growth has been robust in Q3.

“Management guided to revenue between $93 million and $95 million for 3Q with full year revenue between $361 million and $367 million. The midpoint of guidance implies that revenue growth decelerates to 78 percent y/y in 3Q from 93 percent last Q with full year revenue growth at the midpoint of 77 percent y/y,” the analyst stated.

However, Essex expects the company to beat the guidance for Q3, as well as for the full year.

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