Analysts hint at potential target upgrades as Shopify reports strong growth heading into the holidays
Shopify Inc.'s shares surged over 25 percent during midday trading on Tuesday, following a quarterly earnings report that surpassed analyst expectations.
According to BNN Bloomberg, analysts Samad Samana of Jefferies and Tyler Radke of Citi indicated that Shopify’s stock may have further potential for growth.
“It was a bang-up quarter across the board, that’s the only way to describe it,” remarked Samana, Jefferies’ managing director, during a Tuesday interview with BNN Bloomberg.
Samana noted robust growth in Shopify's top-line performance, margin expansion, and a positive outlook that suggests continued momentum for the Ottawa-based company.
Shopify, which operates with US dollar-denominated financials, reported a net income of US$828m for the third quarter, an increase from US$718m a year ago.
The company’s revenue rose by 26 percent to reach US$2.16bn, exceeding Bloomberg analysts' projected average of US$2.12bn. Shopify anticipates strong sales growth extending into the holiday season, projecting year-over-year revenue growth in the mid to high twenties for the fourth quarter.
Samana commented that Shopify’s revenue growth far outpaces most competitors in the e-commerce sector, where growth in the US hovers closer to high-single-digits.
He noted that Shopify's success stems from both market expansion and increasing market share. “They’re democratizing e-commerce, enabling new entrepreneurs and allowing them to get online more quickly,” he explained.
Citi’s Tyler Radke echoed these sentiments, stating that the third quarter demonstrated Shopify’s capabilities in revenue and profitability.
Radke added, “Shopify was able to post the strong quarterly numbers even as the macroeconomic backdrop remains shaky.” He highlighted Shopify’s gains in international markets, including Europe, which he described as “choppy from an economic perspective.”
Radke viewed these gains as evidence of Shopify’s competitive differentiation.
Radke also focused on Shopify's merchant growth, citing an increase in new merchant additions. He pointed out that Shopify recently reduced its free trial period for new merchants from 90 to 45 days, which has accelerated the onboarding of paying customers.
In Toronto on Tuesday, Shopify shares were trading above $157, their highest point since 2022 and exceeding Radke’s and Samana’s current price targets. Both analysts suggested that these targets may be adjusted upwards in response to Shopify’s strong quarterly performance.
“We always adjust for new information,” Samana said. He clarified that the recent results were stronger than anticipated, both by the analysts and the broader investor community, adding, “I don’t think the stock is overvalued based on the results that you just saw.”
