Shopify upgraded to Buy at DA Davison following recent selloff

DA Davidson upgraded Shopify (NYSE:SHOP) to a Buy rating (From Neutral) and reiterated a $50.00 price target on the stock following an over 20% selloff post earnings. Analysts believe that the selloff has created an attractive entry point.

Further, analysts view the opportunity for Shopify Audiences as underappreciated and are encouraged by SHOP's competitive positioning in the mobile market. DA Davidson sees Shopify as one of the most important software companies given its leadership in a nearly boundless TAM.

On January 24th, Shopify announced it was increasing its pricing for its Basic, Shopify, and Advanced plans by ~33%. The announcement marks the first price hike in over a decade despite the platform’s rapidly growing feature set. The increase affects ~55% of Subscription Solutions revenues, or 16% of overall sales, and DA Davidson believes it could boost 2023 revenues by $200 million and EBITDA margin by 94bp.

Another key topic coming out of earnings last week was implied guidance calling for operating losses despite the recent headcount reduction. Analysts wrote in a note, “We find the decision to reinvest as prudent, considering the growth opportunities particularly during the next upswing. 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”.

They also believe that Shopify is in the early stages of leading the democratization of commerce, as evidenced by a quickly rising Shop app and an underappreciated Shopify Audiences opportunity.

Analysts continued in the note, “SHOP currently offers Shopify Plus customers (sitting at ~14K merchants) access to Audiences (announced in May 2022), a way for retailers to leverage SHOP’s 1P data for ad targeting. This data is extremely valuable given the current privacy-centric landscape and increasing targeting challenges. While the use of Audiences is not an additional cost to Plus customers, it could drive GMV expansion, ultimately benefiting the top line. We believe continued expansion of Shopify Audiences will be a key driver for Shopify Plus growth as its benefits become more apparent on increased adoption, but believe extending access to non-Plus merchants would provide an even larger opportunity for SHOP, with little attrition to Plus’ growth potential.”

source：investing