Shopify's stock has had a monster 2023, but this analyst says that run may be up

By Emily Bary

Piper Sandler analyst moves to bearish stance on Shopify shares, warning that expectations look 'too aggressive'

Shopify Inc.'s stock has more than doubled thus far in 2023, but a Piper Sandler analyst is skeptical that it can continue its monster run.

Piper's Clarke Jeffries downgraded Shopify's stock (SHOP) to underperform from neutral Tuesday, warning of an "untenable valuation" in light of "too aggressive" expectations for growth and profit going forward.

"Macro, execution, or near-term demand are not catalysts for our rating change, but we believe fundamentals are set to moderate in 2024 as the company clears events unique to 2023," he wrote in his latest report, noting that the stock benefited this year from the company's moves to exit the logistics business, scale back its workforce and recognize pricing changes.

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Jeffries said he thinks some on Wall Street might be too optimistic about how big a bite the e-commerce sector can take out of overall retail sales in the next five years.

"Based on our analysis of the e-commerce by merchandise categories, five years of 12.5% e-commerce growth would see penetration of applicable e-commerce [total addressable market] rise to over 50%-- too aggressive in our view," he wrote.

Additionally, he said he worries about Wall Street expectations for Shopify itself. "Looking ahead to 2024, we believe it is unlikely that the combination of merchant growth or underlying [same-store-sales] growth can sustain levels to surpass consensus expectations of high-teens revenue growth next year," Jeffries said.

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While he sees room for the company to expand its monetization per merchant, he has doubts about the magnitude of future improvement. Some 70% of Shopify's take rate -- or the amount the company retains for helping to facilitate transactions -- came from growing penetration of the company's payments offering, according to Clarke. But gross payment volume growth could slow moving forward, he added.

Shopify shares were near flat in Tuesday morning action, after rising 113% so far this year.

-Emily Bary

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11-28-23 1144ET

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