Wells Fargo Downgrades Shopify, Says Strong Growth Largely Priced In

Shopify Inc SHOP has prospects of a strong multi-year revenue run rate, but this is already reflected in its stock after the recent rally, according to Wells Fargo.

The Shopify Analyst

Timothy Willi downgraded Shopify from Overweight to Equal-Weight, while raising the price target from $500 to $700.

The Shopify Thesis

Shopify’s stock has appreciated 84% year to date, significantly outpacing the 12% rise in S&P 500 and 17% of the peer group, Willi said in a note.

This outperformance was warranted, given the company’s solid growth prospects, driven by the rapid shift towards online and omni-channel commerce, its exposure to growing verticals like food and beverages and a stabilization in softer verticals like apparel.

See Also: Shopify Reports Q1 Earnings Beat, Subs Revenue Grows 34%

Shopify’s reported 47% growth in revenue to $470 million in the latest quarter, significantly beating expectations. The revenue growth was driven by Gross Merchandise Volume (GMV) growth of 46%. The analyst added that the company’s subscription revenue also rose 34% with a rise in new merchants offsetting any discounting and plan downgrades.

“GMV growth accelerated in April, with strength noted across numerous geographies/verticals,” Willi wrote. He added that new stores on the platform grew 62%, driven by the free trial and shift to online shopping.

That said, Willi said there is limited upside to the stock following the recent rally.

SHOP Price Action

Shares of Shopify declined by a little over 1% to $725.23 at time of publication Thursday.