Thursday's quarterly earnings report didn't generate the kind of market applause that bulls were hoping for, but many Wall Street pros see better days ahead for Shopify (SHOP 3.33%) and its shareholders. At least five analysts jacked up their price targets on the dot-com darling within 24 hours of Thursday morning's financial update, with the highest of the hikes setting a goal of $158 on Shopify stock.
Those price targets are percolating despite investors' unenthusiastic response to a seemingly strong fourth-quarter report. Shopify's stock price rose a mere 0.3% on Thursday, lagging the buoyant broader market. Revenue rose by a better than expected 71% to $222.8 million, fueled by the one-two punch of a 67% surge in subscription revenue and a 74% spike in merchant solutions. Shopify's adjusted earnings of $0.15 a share were three times what analysts were targeting. Revenue guidance for the first quarter and all of 2018 also landed ahead of where the pros were perched. Then again, after you've had a monster run -- the stock has more tripled since the start of last year -- sometimes even a great report warrants stopping for a breather.
Image source: Shopify.
Building up the wall
Colin Sebastian at Baird was the one bumping his price target from $110 to $158. He feels that even Shopify's rosy guidance could prove conservative based on its momentum in winning net new additions to its platform, cross-selling merchant solutions, and expanding internationally.
Richard David at Canaccord went from $115 to $155, also asserting that Shopify is being conservative with its 2018 guidance. He feels that sustaining its impressive growth may prove challenging in the future, but he doesn't see a slowdown coming until 2019 at the earliest.
Piper Jaffray's Sam Kemp is lifting his price goal from $110 to $155. He too argues that Shopify is once again low-balling its revenue-generating potential in light of recent trends. All three analysts naturally have bullish ratings on the company, and raising their price targets by 35% to 44% is merely keeping up with the stock's big gains since its last quarterly report.
Darren Aftahi at Roth Capital came through with his second price target hike of the week. He had moved his goalposts from $127 to $144 on Tuesday, encouraged by channel checks suggesting that the fourth-quarter numbers two days later would be stronger than expected. He was right. Aftahi is now bumping his firm's target to $151.
Not every boost came from a bullish analyst. Ross MacMillan at RBC Capital is sticking to his neutral rating on the shares. He's concerned that Shopify's investments in growth initiatives may not be enough to sustain growth at heady levels given merchant turnover. He still jacked up his price target from $103 to $120, but that's actually well below where the stock is at right now.
Investors who are long shouldn't fret about the market's ho-hum reaction to what was seemingly a great report. Revenue and adjusted earnings landed ahead of even what the most bullish analysts were expecting. There are now more than 600,000 merchants on the Shopify platform, and they generated a record $9.1 billion in gross merchandise volume during the seasonally potent holiday quarter. Looking at a single trading day isn't the right way to grade what has been one of the market's biggest winners over the past two years.
