Shopify

The downtrend in Shopify (NYSE:SHOP) (TSE:SHOP) stock continues as tough year-over-year comparisons, the absence of government stimulus that fuelled consumer demand in the first half of 2021, and inflation weighed on its growth and stock price.

SHOP stock is down is about 70% this year. Further, it closed around 15% lower on Thursday as its Q1 performance failed to impress investors.

Shopify’s revenue increased 22% year-over-year despite difficult comparisons. However, it came in below the Street’s projection. This didn’t sit well with investors.

Jefferies analyst Samad Samana stated that heading into the quarter, the expectations were already low for Shopify. However, Shopify failed to meet even the lowered expectations. Samana lowered his price target on SHOP stock to $550 from $1,350. However, he maintained his Buy recommendation.

Along with Samana, Oppenheimer analyst Brian Schwartz reduced his price target to $500 from $900 a share. However, the analyst reiterated his bullish outlook as he remains upbeat about Shopify’s growth prospects.

Now What? 

Tough year-over-year comparisons, macro headwinds, including high inflation, and an acceleration of investments could continue to weigh on Shopify’s top line and profit margins in the near term. However, Shopify’s management remains upbeat and expects growth to accelerate in the second half, with Q4 registering the highest growth.

Further, Shopify expects the number of merchants joining its platform to be in line with 2021, while merchant solutions revenue will remain strong.

However, most analysts remain sidelined on SHOP stock due to the near-term challenges. It sports a Moderate Buy consensus rating based on 14 Buy, 16 Hold, and one Sell recommendations.

Bottom Line 

While Shopify’s growth could remain subdued in the short term, its investments in sales and marketing, the strengthening of its fulfillment network, and new merchant acquisitions bode well for growth. Further, its strong competitive positioning and growing e-commerce penetration augur well for growth.

Due to the recent decline in its price, the average Shopify price target of $835.74 implies 102.3% upside potential from current levels.