Shopify Is Just Getting Started: Considerable Runway Ahead, Multiple Upside Drivers

“With considerable runway ahead and multiple upside drivers, Shopify Inc (US) SHOP continues to be our favorite growth name to own,” Pacific Crest’s Monika Garg said in a note, while adding that the company had “a path to $1.7 billion in revenue and $90 billion in GMV (gross merchandise value), which would make Shopify a key data asset.”

The analyst maintains an Overweight rating on the company, while raising the price target from $66 to $78.

Long Runway

Garg mentioned that Shopify shares deserved a premium valuation, given the company’s leading SaaS growth.

Stating that the growth runway was much longer than anticipated, the analyst noted Magento generated GMV of $105 billion in 2016, while continuing to grow GMV on its platform.

“This suggests that there is still ample runway for Shopify, given Magento is 6x larger and still growing,” Garg went on to say.

Multiple Drivers

In addition, with Shopify’s market penetration still low, the company believes it has a total addressable market of 10 million merchants across the global developed markets — which means that at 4 percent penetration, this market is still underpenetrated.

In addition, small and medium businesses continue to be underserved by lending institutions due to the high customer acquisition costs.

However, Garg believes Shopify has access to the most valuable merchant data, which it could monetize in various ways.

“This could be the biggest asset Shopify is building,” the analyst pointed out.

Also, Garg noted the company was consistently adding new capabilities, with adoption not entailing any customer acquisition cost.

“Despite price increases, Shopify Plus customers grew to 2,500 in 2016 from 1,000 last year. The company has grown GMV per customer by 20 percent-plus, which shows Shopify is either signing larger customers or existing customers are growing organically, or a combination of both,” the analyst added.

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