Morgan Stanley's Price Target On Shopify Shows No Upside Left, But Highlights Operating Margin Growth

Morgan Stanley analyst Keith Weiss reiterated an Equal-Weight rating on the shares of Shopify Inc SHOP and raised the price target from $59 to $62.

The e-commerce company reported third-quarter revenue growth of 25% year-over-year to $1.71 billion, which beat the consensus estimate of $1.67 billion. Adjusted EPS of $0.24 also beat the consensus estimate of $0.14.

Shopify posted strong Q3 results with better monetization of the merchant base, traction upmarket, European expansion, and pricing power, writes the analyst.

Gross Merchandise Value (GMV) growth of about 22% YoY topped expectations for about 17% growth, notes the analyst.

With another quarter of solid results, it does appear the Shopify platform has regained its momentum and the shift to yielding on the platform is bearing fruit, says the analyst.

Management guided to high-teens revenue growth in Q4, below investor expectations for low-20s growth YoY.

The main event for the Q3, according to the analyst, was operating margin upside, which at 16% materially topped consensus at ~10%, with management looking for opex down further into Q4.

The upcoming Analyst Day on December 5 likely represents the next potential catalyst further to bolster confidence in the durability of top-line growth, writes the analyst.

The analyst’s revised $62 price target is based on applying a terminal EV/FCF multiple of 25x, in line with the LargeCap Software median and implies 40x EV/CY25e FCF or 0.79x on a growth-adjusted basis vs. Large-Cap median at 0.97x.

Price Action: SHOP shares are trading higher by 3.08% at $61.54 on the last check Friday.