Shopify Shares Are Up Monday: What's Going On?

Shopify Inc. SHOP shares are trading higher Monday after Needham & Company initiated coverage on the stock with a Buy rating and a $135 price target.

What To Know: The bullish initiation came alongside a separate price target increase from Baird. The positive analyst attention helped push Shopify's stock to $116.97 during the session, according to Bloomberg.

In its report, Needham highlighted Shopify's long-term growth potential, stating that the company remains in the middle phase of a durable growth cycle rather than approaching maturity. The firm pointed to Shopify's significant investments in international markets and B2B commerce as key drivers of its next growth phase. Needham sees these areas as underpenetrated and critical to Shopify's ability to sustain double-digit revenue growth over the coming years.

Needham also noted Shopify's strong operating leverage and free cash flow expansion as factors supporting its bullish view. Over the past few years, Shopify has expanded its non-GAAP operating margins from just above breakeven pre-pandemic to over 16% in fiscal year 2024. The firm projects that margin expansion could continue, pushing free cash flow margins toward 20% by fiscal year 2027. Needham expects Shopify's free cash flow to grow by 26% in fiscal year 2025, with steady growth continuing into fiscal year 2026.

The firm acknowledged some risks, particularly Shopify's exposure to shifts in consumer spending, given the company's reliance on payments within its business model. However, Needham believes the size of Shopify's total addressable market and its strength as a platform provider mitigate those concerns. The report emphasized that Shopify's ease of use, extensive app ecosystem, and ability to scale with customers have made it a dominant player in the global e-commerce space.

Needham’s coverage initiated on the belief that Shopify can maintain revenue growth of 20% or more for the next few years, backed by its position in the growing international e-commerce market and its push into B2B solutions. With the company trading at roughly 26 times next-twelve-months gross profit, the firm views Shopify's valuation as justified given its consistent financial performance and growth outlook.

Shopify's rally on Monday reflects renewed investor confidence following the positive analyst coverage. The company's shares have traded between $48.56 and $129.38 over the past year, with Monday's gains pushing the stock closer to the upper end of that range.

SHOP Price Action: Shopify shares were up 4.14% at $116.75 at the time of writing, according to Benzinga Pro.

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