Shares of Shopify Inc. nabbed an upgrade Tuesday as a D.A. Davidson analyst sees an “attractive entry point” into a name that’s been crunched in the wake of earnings.
has fallen 22% since the e-commerce company earlier this month posted fourth-quarter earnings, which came with a disappointing forecast for the current quarter. The magnitude of the selloff seems “overdone,” in the view of D.A. Davidson’s Gil Luria.
“Now that the dust has settled post-4Q22 earnings call, we believe current consensus could prove conservative and a return to small losses is a fleeting issue,” Luria wrote in a note to clients, as he bumped up his rating on the stock to buy from neutral.
He dubbed Shopify “one of the most important software companies given its leadership in a nearly boundless TAM,” or total addressable market.
Luria is upbeat about Shopify’s ability to drive growth in subscription revenue on the back of price increases. The price hikes Shopify announced in January could boost subscription revenue by 12% this year and serve as a cushion of sorts in case of pressure on volumes.
He noted that his estimate “is based on very conservative underlying growth in the number of merchants and serves as a hedge to potential churn.”
Luria also is willing to give Shopify a pass for the implication that it could see operating losses despite pruning its headcount.
“We find the decision to reinvest as prudent, considering the growth opportunities particularly during the next upswing,” Luria wrote. “Further, we note this is not a permanent change to the profitability of the model, as the company has shown it has the levers to return to profitability in any given quarter.”
Shopify “is in the early innings of leading the democratization of commerce,” he added, while maintaining his $50 price target.
Shares of Shopify have declined 37% over the past 12 months, though they’re up 19% to kick off 2023. The S&P 500
has fallen 8% over a 12-month span but is up 4% so far this year.