4. Shopify Inc (NYSE:SHOP)
Number of Hedge Fund Investors: 65
BofA added Shopify Inc (NYSE:SHOP) to its list of the best of breed stocks for the third quarter of 2024. Wall Street continues to shower positive ratings and comments for the Canadian ecommerce store platform Shopify Inc (NYSE:SHOP). Last month, Goldman Sachs analyst Gabriela Borges upgraded the stock to Buy from Neutral and increased their price target for SHOP to $74, saying Shopify Inc (NYSE:SHOP) investments in marketing are “about to pay off” and will drive revenue growth into 2025.
Earlier this month, JPMorgan started covering the stock with an Overweight rating. Analysts at JPMorgan said Shopify Inc’s (NYSE:SHOP) competitive advantages include product breadth, ease of use and scale. These moat points, according to the bank, will keep powering Shopify’s “industry-leading” growth.
While Shopify Inc (NYSE:SHOP) results were strong and better than expected, Shopify Inc (NYSE:SHOP) weak guidance threw water on the enthusiasm around the stock as it fell sharply. SHOP is down 12% so far this year. Analysts believe this is a buying opportunity and that the reaction to guidance was overblown. The weak guidance came amid the effects of Shopify’s Inc (NYSE:SHOP) sale of logistics business and because of latest pricing changes. Shopify’s Monthly Recurring Revenue, or MRR, has been showing strengths over the past several months and the company is expected to maintain its 20%+ revenue growth rate in the second quarter, while Shopify Inc’s (NYSE:SHOP) Gross Merchandise Value (GMV) and international growth remains strong. Wall Street expects the company’s earnings to grow 28.60% next year and at about 50% over the next five years on a per-annum basis. Based on these growth estimates, the stock’s higher P/E is justified.
Brown Capital Management Mid Company Fund stated the following regarding Shopify Inc. (NYSE:SHOP) in its fourth quarter 2023 investor letter:
“Among the top contributors for the fourth quarter were Shopify Inc. (NYSE:SHOP) and Manhattan Associates (MANH). Shopify is the second-largest cloud-based e-commerce software platform in the U.S., with 10% market share. Shopify provides upstarts and Fortune 500 companies alike with turnkey solutions to help individuals and businesses run their online stores. The range of services includes web design, inventory management, payment processing, analytics and reporting, among others. We believe the company is the most attractive alternative to Amazon and has an addressable market greater than $150 billion.
Shopify released stellar results this quarter, growing revenue 25% with meaningful margin expansion and management indicating more to come. Notably, the third quarter was Shopify’s first full quarter after deciding in May 2023 to abandon its in-house fulfillment and logistics ambitions which put significant pressure on margins. Additionally, competitive concerns from Amazon’s “Buy With Prime” initiative that launched in April 2022 also abated. The feature allows merchants selling outside of Amazon to access its fulfillment network and enjoy Prime benefits such as free deliveries and returns, posing a threat to Shopify’s payment-processing revenue. Instead of duking it out, Shopify and Amazon reached a partnership agreement in September that preserves customer choice and, to our knowledge, keeps Shopify’s payment revenues intact. With these key concerns in the rear-view mirror, Shopify should have a clear path to double-digit revenue growth and margin expansion for years.”
