Cloud-based, multi-channel commerce platform provider Shopify (SHOP) is taking various steps to diversify its offerings and explore new avenues with solid prospects. In the past year, Shopify stock has returned 22.98% on investment.
Encouraging Developments
Shopify’s foray into emerging technologies is expected to be a strong growth driver in the long run. The company now enables merchants to use Shopify’s new non-fungible token (NFT) platform to create and sell their own NFTs.
NFTs are digital ledgers saved on a blockchain (a secure, difficult-to-hack framework). These ledgers are not interchangeable, which makes NFTs different from cryptocurrencies, although they function on the same framework.
Again, keeping the growing popularity of the metaverse in sight, Shopify acquired augmented reality (AR) provider Primer early this year. Shopify saved itself a sure spot in the metaverse with the acquisition. Now, users will be able to use the Shopify platform to visualize what the interior of their homes will look like with various home décor and furnishing products, such as tiles, wallpapers, or paint.
Strong Financial Health, New Profit Avenues
Evercore ISI analyst Mark Mahaney believes that Shopify is capable of generating significant cash flows. “The long-term margin profile of SHOP was historically a key investor concern and we believe this year they have proved that this business can generate significant Free Cash Flow,” said Mahaney. He pinned his free cash flow expectation for this year at approximately $780 million.
Recently, Meta (FB) has partnered with Shopify to open the Shop Pay option to non-Shopify merchants at checkout on the former’s Facebook and Instagram platforms. Moreover, Alphabet (GOOGL) is expected to come up with a similar offering soon. This has increased Mahaney’s confidence in Shopify.
“We believe the extension of Shop Pay to non-Shopify merchants through distribution channels like Google and Facebook will be a powerful multi-year tailwind,” opined the analyst.
Mahaney is also upbeat about Shopify’s revenue growth trends, as reported in the SHOP stock earnings release. “By the numbers, SHOP’s ’21- ‘23E (estimated) Revenue CAGR of 34% is the fastest among all our Mega and Large Cap coverage,” he noted.
Encouraging Traffic Trends
Being an online marketplace platform, traffic to Shopify’s website is an important metric to measure how the business is doing. Alarmingly, according to a recent Holiday Shopping survey conducted by Evercore ISI, a decline was seen in the purchase intentions of buyers across multiple categories for large retailers including Amazon (AMZN), Walmart (WMT), and Target (TGT).
Therefore, it was a relief when we found that Shopify has been witnessing a growing number of unique visitors to its website steadily from July onwards. More specifically, unique visitors grew 7.09% between October 21 and November 21.
Experts’ Take
Mahaney upgraded the Shopify stock to a Buy from Hold, while maintaining the price target of $1770.
Turning to Wall Street, analysts seem to have mixed stances that lean a little towards optimism. Shopify holds a Moderate Buy consensus rating based on 11 Buys and 9 Holds. The Shopify stock projections show an average price target of $1652.32.
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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