Shares of Shopify Inc. were up by more than 25 per cent in midday trading on Tuesday after the Canadian e-commerce giant posted earnings that beat expectations – and two analysts say the stock has more room to run.
“It was a bang-up quarter across the board, that’s the only way to describe it,” Samad Samana, managing director at Jefferies, told BNN Bloomberg in a Tuesday interview.
“You had robust growth across the top line, you saw solid margin expansion, and you saw an outlook that reflects a business with a lot of momentum behind it.”
The Ottawa-based firm, which keeps its books in U.S. dollars, said it earned US$828 million in net income for the third quarter, up from US$718 million last year, while revenue grew by 26 per cent to US$2.16 billion, beating the US$2.12 billion average estimate of Bloomberg analysts.
The company also said it expects to sustain strong sales growth into the holiday season, projecting percentage revenue growth for the fourth quarter ending in December to be in the mid to high twenties year-over-year.
That kind of revenue growth far outpaces most of Shopify’s competitors in the e-commerce space, Samana said.
“If you think about e-commerce as a whole, (it’s) closer to high-single-digits in the U.S., and if you think about Shopify, they just posted well north of 20 per cent growth, and I think what that tells you is they’re benefiting from the end market itself, but gaining more and more market share,” he said.
“How are they doing that? They’re democratizing e-commerce, they’re not just getting merchants that were already transacting online, they’re enabling new entrepreneurs, new people that want to participate in e-commerce and allowing them to get online more quickly.”
Tyler Radke, director and lead equity research analyst covering global software at Citi, told BNN Bloomberg in a Tuesday interview that analysts “finally saw everything come together” for Shopify in the third quarter.
“We saw the combination of a good healthy beat on revenue but also on profitability, and you saw that flow through into the fourth quarter,” he said, adding that Shopify was able to post the strong quarterly numbers even as the macroeconomic backdrop remains “shaky.”
“I think (Shopify) really separated themselves from the pack this quarter,” Radke said.
“They called out strength in areas like international and Europe, which obviously are a bit choppy from an economic perspective, but I think that really shows the share gains and the competitive differentiation that the platform has, so there was a lot to like.”
Radke said that in addition to the headline numbers, he was watching closely for details around Shopify’s new merchant strength in the company’s results – a good indicator of underlying business strength.
“They did talk about another good quarter of merchant additions, and one of the things that Shopify did about 90 days ago was they shortened the trial period for new merchants,” he explained.
“If you go and want to set up your own e-commerce storefront, you can go and sign up for free on Shopify. They used to offer a trial period of something like 90 days, but they’ve shortened that down to 45 days, so that’s really helped them increase the velocity of onboarding new paying customers.”
Shopify shares were hovering above $157 in afternoon trading in Toronto on Tuesday, the highest they’ve been since 2022, and above Radke and Samana’s current price targets.
However, both analysts suggested that their target is likely to be revised upwards in light of the strong quarterly results.
“We always adjust for new information, and if you think about today’s results, they were better than what we were forecasting before the company reported, and I think they were much better than what investors were expecting as well,” Samana said.
“What we always do when a company reports is we sit back, we look at the information and then we update our view based on that, and what I’d say is I don’t think the stock is overvalued based on the results that you just saw.”
With files from The Canadian Press and Bloomberg News