Why This Shopify Analyst Says 'A Premium Is Warranted' Following Price Increases And A Merchant Survey

Shopify Inc SHOP shares jumped last week after the company raised prices on all of its plans following 12 years of largely unchanged pricing. Roth Capital turned more positive on the stock in the wake of the price hikes.

What Happened: Roth Capital analyst Darren Aftahi upgraded Shopify from Neutral to Buy and raised the price target from $38 to $56.

Aftahi saw more favorable comparables and increased visibility ahead. He was raising his price target as he expected the more expensive plans to spark increased top-line growth in 2023.

"After more than tripling sales in just three years, we still project double-digit growth this year, and with its new pricing tiers, that figure could approach 20%," the Roth Capital analyst said in a new note to clients.

Aftahi noted tougher comps from heightened growth during the pandemic are now behind Shopify. On a year-over-year basis, the analyst anticipates growth in the 18% to 20% range in 2023. 

Last week, Shopify announced existing customers could switch from monthly plans to yearly plans to keep their current monthly rates. With new monthly prices up 33% on average and yearly plans now offering discounts, Aftahi expects more customers to switch to the annual membership, which should improve visibility and reduce merchant churn, he said.

"Given SHOP’s market-leading position in e-commerce software, we believe a premium is warranted," the Roth Capital analyst said.

Related Link: Shopify Stocks Rises After Company Increases Pricing Plans

What Else: Roth Capital also surveyed Shopify merchants in an attempt to uncover recent business trends. The median growth rates for merchants averaged 11.3%, up 2% from last year's survey. 

Of the respondents surveyed, approximately 88% used Shopify payments and 61% used Shopify shipping solutions, flat and up 2% year-over-year respectively. 

"We asked about cadence of business trends across the Q. In general, responses suggested November was the strongest growth month with shoppers trying to get an early start to holiday shopping, slowing slightly in December, with October being the weakest month, on a relative basis," Aftahi said.

Roth Capital also noted that MasterCard's spending pulse from November to late December jumped approximately 7.6%. E-commerce growth was up approximately 10.7% during the same time period. 

Shopify is set to report its fourth-quarter financial results on Feb. 15. The company is expected to report a net loss of 1 cent per share on quarterly revenue of $1.65 billion, according to Benzinga Pro.

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SHOP Price Action: Shopify has a 52-week high of $98.85 and a 52-week low of $23.63.

The stock was down 3.51% at $48.32 at time of publication.

Photo: deepak pal from Flickr.