On Wednesday, Piper Sandler adjusted its price target for Shopify (NYSE:NYSE:SHOP), raising it to $94.00 from the previous $67.00, while keeping a Neutral stance on the stock. The adjustment follows Shopify's third-quarter financial results, which showed several key developments. The company's operating expenses, in non-GAAP terms, decreased more significantly than in the second quarter, dropping an estimated $34 million quarter-over-quarter compared to a $8 million decrease in the previous quarter.
Shopify's revenue growth accelerated to 26%, marking the sixth consecutive quarter of achieving more than 25% of adjusted revenue growth, excluding logistics. Additionally, the company's free cash flow (FCF) margin reached 19%, which is an increase of 320 basis points quarter-over-quarter and 340 basis points year-over-year. With the fourth quarter FCF margins expected to mirror those of the same quarter in the previous year, Shopify is anticipated to surpass $1.5 billion in FCF for the year, representing approximately 70% year-over-year growth.
The company's stock experienced a notable rise, approximately 25%, on Wednesday. This surge is attributed to both Shopify's solid fundamentals and investors covering their positions after the earnings report. Despite the positive developments and the price target increase, Piper Sandler expressed caution regarding the stock's valuation. At around $110, Shopify is trading at approximately 60 times its projected CY26E FCF. Even with a five-year forecast for valuation, the firm's Bull case suggests only a modest 11% upside potential.
In other recent news, Shopify's third-quarter performance exceeded expectations, with a 26% increase in revenue and a 24% growth in Gross Merchandise Volume (GMV). The company's operating income more than doubled from the previous year, and the free cash flow margin expanded to 19%. Truist Securities, Loop Capital, and Scotiabank (TSX:BNS) have all raised their price targets for Shopify, keeping a Hold or Sector Perform rating. Truist's new target is $110, Loop Capital's is also $110, and Scotiabank's is $115. Each of these adjustments reflects the firms' recognition of Shopify's strong performance and potential for further growth.
Oppenheimer also expressed a positive outlook on Shopify, raising the price target on the company's shares to $130, while maintaining an Outperform rating. Shopify's fourth-quarter projections indicate an acceleration of top-line growth to the mid- to high-20% range, partly due to a new partnership with PayPal (NASDAQ:PYPL). The company also reported an impressive 35% growth in the Europe, Middle East, and Africa (EMEA) region.
InvestingPro Insights
Shopify's recent performance aligns with several InvestingPro metrics and tips, providing additional context to the Piper Sandler analysis. The company's market capitalization stands at $142.9 billion, reflecting its significant presence in the IT Services industry. Shopify's revenue growth of 23.18% over the last twelve months supports the article's mention of accelerated revenue growth, while the EBITDA growth of 340.53% underscores the company's improving profitability.
InvestingPro Tips highlight that Shopify is trading near its 52-week high, with a strong return of 74.72% over the last year. This aligns with the article's mention of the stock's 25% surge following the earnings report. The tip suggesting that Shopify is trading at a high earnings multiple is consistent with Piper Sandler's caution on valuation, as evidenced by the P/E ratio of 103.74.
For investors seeking a more comprehensive analysis, InvestingPro offers 22 additional tips for Shopify, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.