Shopify Inc SHOP shares are trading higher after Goldman Sachs analyst Gabriela Borges upgraded the stock from Neutral to Buy and raised its price target from $67 to $74.
Borges noted that Shopify is down 23% year-to-date (versus Nasdaq +14%) due to an investment cycle weighing on margin expansion in 2024 and more mixed consumer spending data points.
Over the medium term, Shopify expects its incremental marketing activities to drive meaningful returns after diversifying from paid search in 2023.
Also Read: Shopify Stock Plunges After Q1 Print As Sale Of Logistics Business Weigh
The analyst noted that the majority of the marketing uptick is tied to performance marketing, with an average payback of 18 months (vs. 18-24 months prior).
Borges said that over the long term, Shopify continues to invest in large adjacencies that can drive step-function changes in the addressable market, including point of sale (POS), B2B eCommerce, and International.
Given Shopify's significant technology moat in eCommerce software and share gain across eCommerce cycles, the analyst noted these investments will drive more durable revenue growth at scale.
As such, he recommended buying the stock after year-to-date underperformance.
If Shopify successfully converts investments to growth, the analyst noted a path to 42x 2026 FCF of $1.75 per share, which drives the $74 price target.
SHOP Price Action: Shopify shares traded higher by 3.91% at $29.22 at last check Wednesday.
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