Analysts revise Shopify stock price target after earnings

This is what could happen next to Shopify shares.

May 10, 2024 - 06:30

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Analysts revise Shopify stock price target after earnings

In boxing there's a move called the pull counter, where the fighter pulls back from an opponent while throwing a counterpunch.

It can be an effective technique — just ask Floyd Mayweather — but it does require good timing.

In the stock market, a pullback is a reverse to a pause or dip in a stock price. Pullbacks are widely seen as buying opportunities, and the term came up recently in reference to Shopify (SHOP) .

The e-commerce platform, which makes tools for companies to sell products online, was founded in 2006 by Tobias Lütke and Scott Lake.

The pair were attempting to open an online store for snowboarding equipment, and Lütke, a computer programmer, was dissatisfied with the existing e-commerce products on the market. So, he built his own.

The company, which now has a market capitalization of $80.65 billion, reported first-quarter earnings on Wednesday.

President sees 'strongest version of Shopify yet'

"The start of 2024 has been very strong for Shopify with more and more merchants thriving on our platform," Harley Finkelstein, Shopify's president, said during the company's earnings call.

"This is the strongest version of Shopify yet. We're helping millions of merchants around the world to both start and scale their businesses," he added.

As far as the numbers go, Shopify posted first-quarter earnings of 20 cents a share, up from 1 cent a year earlier and beating LSEG's call for 17 cents a share.

Revenue totaled $1.86 billion, up 23% from a year earlier and coming in ahead of Wall Street's call for $1.85 billion.

"We see consumer spend in North America remaining resilient [and] we have factored in headwinds related to [foreign exchange] from the strong U.S. dollar and some softness in European consumer spending in our Q2 outlook," Chief Financial Officer Jeff Hoffmeister told analysts.

The company said that it expected operating expenses to increase in the low- to mid-single-digits percent quarter over quarter, while analysts were calling for little change.

In addition, gross margin for the second quarter is expected to narrow roughly 0.5 percentage point compared with the first quarter, following Shopify’s sale of its logistics business to freight forwarder Flexport last May.

The deal included Deliverr, the tech-enabled shipping services provider Shopify had bought in 2022 for $2.1 billion. The company also laid off 20% of its workforce last year.

Shopify share price tumbles after report

Shopify's shares tumbled after the earnings report and several analysts adjusted their price targets accordingly.

Citi lowered the firm's price target on Shopify to $95 from $105 and affirmed a buy rating on the shares.

The company's first-quarter left a lot to be desired with "smaller beats, soft guidance and ramping spending," the investment firm told investors in a research note.

But Citi recommends buying the stock on weakness. The firm sees the setbacks as temporary, saying Shopify's volume suggests macroeconomic resiliency and continued share gains.

CIBC analyst Todd Coupland lowered the firm's price target on Shopify to $85 from $100 and reiterated an outperform rating on the shares. He said the company’s second-quarter outlook for revenue and margins was weaker than expected.

Coupland said investors are wrestling with the idea of slowing growth and heightened investment required to sustain Shopify's sales.

He said he viewed the 19% post-earnings share pullback as a buying opportunity, saying investors should do so knowing the context of lower growth, free cash flow margins, and valuation.

Analyst sees buying opportunity

Baird analyst Colin Sebastian lowered the firm's price target on Shopify to $77 from $87 and affirmed an outperform rating on the shares.

More Wall Street Analysts:

Sebastian said he is a buyer on pullbacks. He sees the reaction to the earnings report as largely a case of elevated expectations, contrasted with another quarter of strong growth and margin expansion, and no meaningful change to medium- and longer-term views on the revenue and cash-flow opportunities.

Wells Fargo cut the firm's price target on Shopify to $75 from $85 and kept an overweight rating on the shares.

Against an elevated bar, the in-line results coupled with mixed guidance were a letdown, the firm says. Wells Fargo says, however, that the long-term story is structurally intact.

Barclays lowered the firm's price target on Shopify to $63 from $68 and reiterated an equal-weight (effectively neutral) rating on the shares.

The company reported a modest revenue and top-line-driven operating-profit beat, but the guidance implying margin progression stalling out is weighing on the shares, the analyst said. The firm says more muted lift from Plus pricing is also a drag.

JMP Securities upgraded Shopify to outperform from market perform with an $80 price target.

Shopify reported solid first-quarter results with revenue and operating profit above consensus, JMP said, but the firm expects gross-profit margins to narrow while the company invests more in marketing.

The investment firm said the upgrade was driven by the potential for new merchant cohorts to contribute in 2025 and beyond, as well as Plus subscription-price increases coming in the second half of 2024.

In auditing, JMP cites a belief that Shopify remains a best-in-class e-commerce platform that is taking market share and has multiple adjacencies across financial services, advertising, and merchant services.

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