Why This Shopify Analyst Believes Street Expectations May Be Too High

Even though Shopify Inc SHOP continues to be among the top picks in the ecommerce sector, the company’s GMV (Gross Merchandise Value) growth is now more skewed towards enterprise, which exerts pressure on gross profit margins, according to JMP Securities.

The Shopify Analyst: Andrew Boone downgraded the rating for Shopify from Market Outperform to Market Perform.

The Shopify Thesis: Although the company is gaining share with enterprise and offline merchants, it faces gross margin headwinds, given the “lower payment take rates and non-payment Merchant Solution attach rates,” Boone said in the downgrade note.

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The analyst expresses doubts about Shopify's ability to fulfill the projected growth in subscription revenue. This skepticism is rooted in the expectation for 2025, which, as the analyst notes, "calls for acceleration in subscription revenue in 2025, which we believe implies a price increase for Plus merchants."

“While we believe Shopify could push through a price increase, in our view, it is focused on growing enterprise accounts, and we believe a price increase is further out than the Street is currently modeling,” he added.

The stock is currently trading at a “significant free cash flow multiple premium” versus other category-leading software companies, such as Workday Inc WDAY and ServiceNow Inc NOW, Boone further stated.

SHOP Price Action: Shares of Shopify were up 0.1% to $76.96 at the time of publication on Monday.

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