Shopify is Underappreciated, Despite Stock Doubling in 2020: Analyst
Shares of Shopify are up more than 100% since the start of 2020, but RBC believes the e-commerce stock is still undervalued. Internet analyst Mark Mahaney raised his price target to $1,000 (from $825) on Wednesday after the bell.
Bigger piece of a bigger pie: RBC emphasizes that Shopify’s Total addressable market is approaching $800 billion. While Shopify says its TAM is 47 million small and medium size businesses, Mahaney suggests Shopify’s market should instead be defined as the $16 trillion Global Retail market (ex-China), where Shopify’s penetration is below 1%.
Take-Rate: GMV take-rate, which refers to the fees and commission that e-commerce platforms generate from third-party sellers, could increase with the addition of new merchant solutions. One catalyst for take-rate expansion is the launch of the Shopify Fulfillment Network (SFN), which aims to help merchants with 2 day shipping. Services such as this allows Shopify to collect larger fees and commissions on third-party sales, leading to higher revenue.
International opportunity: The U.S. represents 68% of Shopify’s 2019 revenue. Meanwhile, international markets accounted for 78% of global retail sales in 2019 are growing at a faster rate than in the U.S., according to eMarketer. RBC says Shopify experienced record-high app downloads on the Google Play Store in May in Australia, Canada, UK, Spain, Mexico and Brazil.
eCommerce edge: With more than 1 million merchants on its platform, Shopify is a clear winner of the shift to e-commerce and is positioned to benefit further from long-term online retail trends that were accelerated by the pandemic. U.S. Online Retail sales increased for the 4th straight month to 31% year-over-year growth in May, according to Census data, and RBC believes consumer buying patterns have changed permanently.
Strong allies: Over the last month, Shopify has strung together deals with Walmart and Facebook.
Walmart partnership: On Monday, Walmart announced it will open its online marketplace to Shopify's merchants. Walmart said the integration will allow approved Shopify sellers to list their items on Walmart.com, which has 120 million monthly visitors. Walmart’s U.S. e-commerce business grew 74% in the last quarter.
In May, Facebook revealed it would launch Facebook Shops, a new online marketplace aimed at making it easier for businesses to set up an online store on Facebook and Instagram. The social media giant highlighted Shopify as a key partner.
