SECTORFOCUS BLOG
How Shopify Stock’s Triple-Digit Rally Could Keep Going
Goldman Sachs analyst Christopher Merwin raised his target for the stock price, while reiterating a Buy rating on the shares.
Shopify stock has soared well over 100% in 2020, yet Goldman Sachs argues that the continuing shift to digital sales means that the cloud-based commerce platform’s run is just beginning.
Analyst Christopher Merwin reiterated a Buy rating on Shopify stock (ticker: SHOP) on Monday, while raising his target for the price to $1,318 from $1,286. Shopify stock was off 2.6% to $878 in early trading amid a broad selloff that dragged futures on the S&P 500 down by 1.7%.
He said the company’s most recent results marked a “landmark quarter for Shopify in many ways,” including big gains in gross merchandise value (GMV) as more people grow more comfortable shopping online in the age of Covid-19, while it also continues to innovate quickly in solving problems for merchants.
As Barron’s has noted before, the easier a transaction feels to a consumer, the more likely they are to make the purchase. Similarly, Merwin believes that the more Shopify does to offer solutions to merchants, the more it will benefit.
At the moment, Shopify Payments is the largest contributor to merchant solutions, totaling about 73%, he estimates, by the end of the year. GMV has been growing consistently in this division—from 38% in fiscal 2017 to 45% in the most recent quarter—a trend he thinks can continue.
Shopify Capital, the second-largest contributor to the merchant solutions business, can grow at a 16% compound annual growth rate for the next 20 years, he believes.
Yet Merwin is also confident that “the introduction of newer services such as Fulfillment Network, Balance, Installment Pay, etc. will be key components” of Shopify’s success. At the moment, the company’s international shipping business is small, compared to its North America operations, but he sees it growing over time.
In addition, the company launched installment payment options, without additional fees, this May. The flexibility that creates for consumers should encourage more to decide in favor of making purchases.
Of course, Shopify’s prime positioning at the center of e-commerce hasn’t gone unnoticed. The shares had soared nearly 127% year to date through Friday’s close—helped by robust earnings in July—making it Canada’s most valued stock this summer. Nor is this the first time Merwin has raised his price target to keep pace with the rally.
Write to Teresa Rivas at teresa.rivas@barrons.com
