Scotiabank raises Shopify stock price target to $120

On Wednesday, Scotiabank (TSX:BNS) analyst Kevin Krishnaratne increased the price target for Shopify (NYSE: NYSE:SHOP) shares to $120 from $115, while maintaining a Sector Perform rating. Currently trading at $123.59 and near its 52-week high of $125.95, the stock has shown remarkable momentum with an 80.93% return over the past six months. The adjustment followed Shopify’s reported strength in Gross Merchandise Volume (GMV) in North America during the fourth quarter. According to InvestingPro, Shopify maintains a "GREAT" financial health score of 3.29, suggesting strong fundamental performance. Krishnaratne noted that the company’s merchant solutions take rate exceeded expectations at 2.27%, compared to the Street’s forecast of 2.24%, attributing this performance to the maturity of Shopify’s products in North America relative to other regions.

Shopify’s subscription revenue also surpassed projections, coming in at $666 million against the Street’s $652 million estimate. This performance contributes to the company’s impressive 23.47% year-over-year revenue growth and healthy 50.93% gross profit margin. Krishnaratne attributed this to Shopify’s variable pricing model, which is tied to GMV, helping to balance a slight decline in Monthly Recurring Revenue (MRR). MRR saw a modest quarter-over-quarter increase to $178 million, with a slight decrease in non-Plus MRR. The transition to three-month paid trials from the previous one-month trials created a minor headwind, which is expected to continue affecting MRR in the first half of 2025.

Despite these factors, the analyst supports Shopify’s strategy to allow merchants more time to explore the platform, which could enhance GMV in the long term. The revenue guidance for the first quarter reflects this situation, as well as the seasonal dip in GMV typically seen in that period. Krishnaratne also highlighted Shopify’s strong Free Cash Flow (FCF) margins, which were 18% in fiscal year 2024 compared to 12.8% in fiscal year 2023. However, the outlook suggests that FCF margins will not expand in fiscal year 2025, as Shopify plans to invest in growth vectors like Point of Sale (POS), Enterprise, Business-to-Business (B2B), and International expansion.

In conclusion, Krishnaratne views Shopify as a core holding and a leader in the Retail category, but he suggests a more opportunistic approach to the stock, given its valuation at 23.3 times CY26 Gross Profit, which is more than twice the valuation of its peers. With a current P/E ratio of 77.35 and high volatility (Beta: 2.47), InvestingPro analysis suggests the stock is trading above its Fair Value. Investors seeking deeper insights can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, which includes detailed valuation analysis and 18 additional ProTips for Shopify.

In other recent news, Shopify has been the focus of multiple analyst adjustments following its fourth-quarter financial results. Cantor Fitzgerald held its Neutral rating on Shopify with a price target of $120, acknowledging the company’s robust performance despite concerns about its growth and profitability trajectory. Mizuho (NYSE:MFG) Securities increased its price target from $105 to $110, maintaining a Neutral rating, after Shopify exceeded expectations in gross merchandise volume (GMV), revenue, and free cash flow (FCF) in the fourth quarter of 2024.

JMP Securities raised its price target to $135 from $120, sustaining a Market Outperform rating, in response to Shopify’s impressive growth and financial performance. TD Securities increased its price target from $100 to $130, holding a Hold rating, recognizing Shopify’s strong performance and potential for sustained momentum as it expands internationally. Lastly, Stifel analysts adjusted their price target to $120 from $115, maintaining a "Hold" rating, after Shopify surpassed expectations in revenue, GMV, and operating margins.

These recent developments reflect a mixed outlook on Shopify’s future performance, with analysts noting both the company’s strengths and potential challenges. While questions remain about Shopify’s growth and profitability, the company’s strong product roadmap and recent successes have positioned it well for potential future growth.

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