Analyst Note| Dan Romanoff, CPA |
Narrow-moat Shopify delivered another blowout quarter based on a continuation of recent trends involving consumers’ hard pivot to e-commerce during COVID-19 lockdowns. Management reiterated qualitative guidance measures from February. We are skeptical that operating profits dollars will decline in 2021 per guidance and have shaped our model accordingly. Gross merchandise volume, or GMV, is surging, and upsells into merchant solutions, particularly payments, continue to drive results. Shopify continues to benefit (way more than the Street anticipated) from lockdowns that have forced consumers online, which we see as an acceleration of a secular trend. The Shopify Fulfillment Network is likely to gain significant traction with customers and should help drive strong growth over the next decade in our view. We also see room for further penetration in payments, shipping, and capital. Based on results, we raised our growth assumptions throughout our model but continue to wrestle with valuation. We are raising our fair value estimate to $788 per share from $697 (CAD 987 from CAD 880 for Canadian shares). With the shares trading near $1,300, we still see shares as overvalued.