Shopify's Shaky Ground: Analyst Cautious Despite Large Market Opportunity

Shares of Shopify Inc SHOP fell in early trading on Tuesday, after having lost more than 5% last week.

Although Shopify has a large total addressable market (TAM) opportunity as it shifts from being an online platform for SMBs to ecommerce for anyone, there is downside risk for its more consumer-dependent Merchant Solutions, which contributes around 75% of the company’s sales, according to Needham.

The Shopify Analyst: Anna Andreeva initiated coverage on Shopify with a Hold rating.

The Shopify Thesis: The company’s new merchant solutions should enable it to monetize gross merchandises value (GMV) over time, Andreeva said in the initiation note.

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“Given today's soft (or worsening) discretionary demand, we are wary of SHOP's entrepreneur exposure (SMBs make up a majority of GMV),” the analyst wrote. “Sustained strength in the labor market could also pressure new business formation,” she added.

Shopify’s gross margins could compress further, given the “mix shift to lower margin Merchant Solutions/Plus/SFN/Deliverr” and “we are ~100 bps below consensus for '23/'24,” Andreeva further stated.

SHOP Price Action: Shares of Shopify were down by 2.16% to $44.37 at the time of publication Tuesday.

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