Analyst Note| Dan Romanoff, CPA |
Narrow-moat Shopify continues to deliver exceptional results, with its second quarter representing a continuation of what we think are permanently stepped-up e-commerce trends. Management reiterated qualitative guidance from February but now believes it will finish 2021 with higher adjusted operating income compared with 2020. We had previously modeled growing operating profit dollars for 2021 anyway and have increased our estimate further. Shopify continues to benefit (way more than we and the Street anticipated) from lockdowns that have forced consumers online, which we see as an acceleration of a secular trend. The Shopify Fulfillment Network remains in testing but 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 assumptions throughout our model but continue to wrestle with valuation. We are raising our fair value estimate to $862 per share from $788 (CAD 1,080 from CAD 987 for Canadian shares). With the shares trading near $1,560, we still see shares as overvalued.