Mizuho Says Shopify Has Attractive Fulfillment Opportunity, Investments Could Weigh On Margins

Shopify Inc SHOP launched Fulfillment in June last year. Although the new Fulfillment solution offers attractive cross-sell opportunities, the planned investment would exert pressure on the company’s margins for the next several years, according to Mizuho.

The Analyst

Mizuho’s Siti Panigrahi initiated coverage of Shopify with a Neutral rating and a price target of $410.

The Thesis

Shopify is a leader in cloud e-commerce solutions and is well-positioned to generate robust revenue growth, especially given the favorable secular trends, Panigrahi said in the initiation note.

Shopify is targeting a market that is large, estimated at around $30 billion and expected to sustain strong growth, the analyst mentioned. He added that the company is also likely to continue gaining share from legacy incumbent ecommerce vendors.

The recently launched Fulfillment solution enjoys synergies with the company’s products and merchant data, Panigrahi noted. He estimated the cross-sell opportunity at around $9 billion.

The analyst added, however, that Fulfilment is still in the early phases of adoption within Shopify’s installed base and the company’s planned investment in this solution could be a drag on margins several years to come.

Shopify’s shares had appreciated by around 215% in 2019 and the company’s bright prospects seems already priced into the stock, Panigrahi said.