A normalization in growth, the economic reopening, and macro headwinds impacting consumer spending have dragged Shopify (NYSE: SHOP) (TSE: SHOP) stock lower. Despite a recovery from its lows, Shopify stock is still down about 66% from its peak. Further, it has dropped about 57% this year alone.
Now What?
Ongoing macro and geopolitical headwinds and tough year-on-year comparisons could weigh on Shopify’s Q1 performance. Further, aggressive investments in sales and marketing could pressure near-term margins.
However, Robert W. Baird analyst Colin Sebastian sees an uptick in merchant growth in Q1, which is positive. Citing Baird’s e-commerce platform survey, Sebastian stated, “We estimate the number of net active online Shopify sites is slightly higher than our Q4 survey.”
While near-term spending headwinds could remain a drag, the analyst expects improving merchant trends to add visibility for growth and could help in countering competitive concerns. Longer-term, Sebastian sees “significant monetization growth through Shopify’s enterprise, fulfillment and financial services, as well as from the relatively nascent consumer-facing apps.”
Sebastian recommends a Buy on Shopify stock with a price target of $1,000 (69.2% upside potential).
While Sebastian is bullish on SHOP stock, Roth Capital analyst Darren Aftahi downgraded it to Hold. Aftahi believes Shopify’s initiatives to accelerate growth through international expansion will not be enough to offset the impact of normalization. The analyst sees Shopify’s aggressive investments amid a decelerating growth rate deteriorating its operating leverage.
Bottom Line
Shopify’s growth could reaccelerate as comparisons ease in the latter part of the year. Further, the shift toward digital channels and benefits from its investments in sales and marketing provide a solid platform for growth.
Further, its focus on driving new merchants to its platform, expansion into international markets, and new products bode well for growth. Also, an increasing number of Shopify Plus merchants is positive.
While its near-term revenue growth and margins could stay low, the recent correction in its price suggests that the negatives are priced in.
SHOP stock has a Moderate Buy consensus rating based on 13 Buy and 13 Hold recommendations. However, due to the sharp pullback in price, the average Shopify price target of $982.44 implies 66.2% upside potential from current levels.
Further, TipRanks’ Investor Sentiment tool indicates that investors remain Very Positive on SHOP stock. 5.1% of investors holding portfolios on TipRanks have added SHOP shares to their portfolios in the last 30 days. Further, 1.3% of these investors have raised their stakes in the last seven days.
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