Analyst Note| Dan Romanoff, CPA |
Narrow-moat Shopify hit the “ludicrous” button with top- and bottom-line results that blew away both our own and Street expectations, even as management once again declined to provide guidance for the next quarter. Gross merchandise volume, or GMV, is surging and upsells into merchant solutions, particularly payments, is driving results. Shopify continues to benefit (obviously way more than the Street anticipated) from partial 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 top-line growth over the next decade in our view. We also see room for penetration in payments, shipping, and capital. Based on results and management commentary, we have adjusted our model to include faster growth and better margins. We were about 2% above the Street for revenues coming into the quarter for both 2020 and 2021, which contrasts with our Street low fair value estimate, and clearly highlights the struggle between a strong solution with robust fundamentals against the premium valuation. We are significantly raising our fair value estimate to $468 per share, from $238 (CAD 626 from CAD 337 for Canadian shares), based on higher growth and profitability throughout our forecast. With the shares trading at $1,058, we see the stock as overvalued.