Shopify Analysts Cautious Following Q1 Print: 'Look For A More Attractive Entry Point'

Shopify Inc SHOP shares dropped 4.41% Thursday as investors took profits following the company’s big first-quarter earnings beat.

For the first quarter, Shopify reported adjusted EPS of $2.01 on $988.6 million in revenue. Both numbers beat consensus analyst estimates of 75 cents and $862.7 million, respectively. Revenue was up 110% from a year ago.

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Gross merchandise volume more than doubled to $37.3 billion in the quarter.

Shopify's net income got a boost from a $1.3-billion unrealized gain in the company’s 20 million shares of online payments company Affirm Holdings Inc AFRM, which completed its IPO in January.

Despite the big first-quarter numbers, Shopify warned investors that the reopening of the economy this summer coupled with difficult year-over-year pandemic comps could weigh on growth moving forward. Shopify was one of the biggest winners during the pandemic, when many retail stores temporarily closed and shoppers were stuck at home with little else to do other than online shopping.

Difficult Comps Ahead? Bank of America analyst Brad Sills said Thursday that Shopify’s first-quarter numbers were impressive, but Shopify’s growth and margins are “likely peaking.”

“With the most difficult June and September comp quarters coming, and ramping investment cycles in H2, growth and operating margin are likely to decline from here,” Sills wrote.

Morgan Stanley analyst Keith Weiss said Shopify investors have limited visibility heading into a difficult period for the company.

“While management mentioned that the stimulus tailwind dissipated in early April, not much else was offered to help manage the difficult comp coming up next quarter,” Weiss wrote.

Jefferies analyst Samad Samana said Shopify should still be able to generate 50% revenue growth in 2021, even against extremely difficult comps.

“Despite concerns around tough comps and a premium valuation, we continue to believe SHOP's strong fundamentals will drive shares higher over the long run,” Samana wrote.

Shopify's Valuation A Concern: Raymond James analyst Brian Peterson said Shopify’s ability to exceed even the highest Wall Street expectations is impressive.

“That said, with the stock trading at 27x our revised CY22 estimate, we would encourage investors to look for a more attractive entry point,” Peterson wrote.

Wedbush analyst Ygal Arounian said it’s encouraging that Shopify reported GMV acceleration in January and February, even prior to the latest round of stimulus payments.

“Expectations that 1Q21 will be the smallest quarter in the year implies that 2Q21 GMV will grow at least ~30% (off a +119% comp), a phenomenal feat in our view, and a point that should clear up meaningful levels of uncertainty around post-Covid trends for Shopify,” Arounian wrote.

KeyBanc analyst Josh Beck said Shopify has multiple long-term growth levers.

“Most importantly, revenue growth accelerated to 110% vs. mid-90s% in 2H20 as the reopening progresses, supporting our thesis that new merchants and users are likely to provide a structural boost to e-commerce adoption,” Beck wrote.

Shopify Ratings, Price Targets:

• BofA Securities has an Underperform rating and $1,100 target.
• Morgan Stanley has an Equal-Weight rating and raised the price target from $1,300 to $1,400. 
• Jefferies has a Buy rating and $1,675 target.
• Raymond James has a Market Perform rating.
• Webush has an Outperform rating and $1,650 target.
• KeyBanc has an Overweight rating and $1,650 target.

Photo courtesy of Shopify.