Shopify’s (SHOP) multi-tenant, cloud-based e-commerce platform helps small and medium-sized businesses (SMBs) run their businesses across web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces.
Its recently released third-quarter 2021 results failed to live up to consensus expectations. Despite a 46% year-over-year jump, the top-line came below consensus estimates. Moreover, the bottom-line was hit both ways—a miss as well as a 28% year-over-year decline.
Mixed guidance for the fourth quarter is also making investors wary of Shopify. On the one hand, management expects the revenues in the fourth quarter to account for the largest share of net annual revenues; while on the other, supply chain obstructions, advertising headwinds, increased material prices, labor costs, and shipping costs are likely to dampen the company’s Q4 prospects.
Nonetheless, the company’s focus on merchant brand-building looks promising for the top line. In Q3, robust growth in Shopify’s Merchant Solutions segment, on the back of improved gross merchandise volume (GMV), was a key top-line driver. In fact, management anticipates GMV growth to continue in Q4 as well, driven by higher adoption of Merchant Solutions, the addition of new merchants, and increased business from existing merchants.
Following the print, Guggenheim’s Kenneth Wong reiterated a Hold rating on Shopify. However, he did not provide a price target. “Bulls see the ability for Shopify’s GMV to significantly outpace the overall commerce in 4Q as validation that the platform’s omnichannel efforts are driving outsized share gains,” noted Wong. (See Analysts’ Top Stocks on TipRanks)
Wong noted that as economies reopen after the pandemic, retail point-of-sale (POS) hardware is experiencing strong demand. Management expects Shopify’s POS Pro Android platform to boost monthly recurring revenue growth, which was negatively impacted in Q3 due to a reduction in partner app fees.
However, the return of travel and expenses is expected to be an overhang on Shopify’s bottom line as economies reopen.
Additionally, TipRanks’s website traffic tool showed us an interesting trend. The total number of unique visitors to Shopify’s website increased 3.34% sequentially in Q3. However, despite the higher interest in the company’s offerings, the share price declined 7.2% during the same period, possibly due to the headwinds that persisted throughout Q3.
Wall Street, as a whole, shares a cautiously optimistic stance on the stock, with a Moderate Buy rating, based on 10 Buys and 7 Holds. At $1,700.35, the average Shopify price target implies 15.12% upside potential.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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