Amazon’s Big Earnings Miss™ spooked the stock market Friday, sending the Nasdaq into a 4% downwards tailspin. Amazon’s report also set at least one analyst to wondering what Amazon’s bad news might portend for Shopify (SHOP) when it reports its own Q1 earnings on Thursday, May 5.
Heading into Q1 results, at least most analysts aren’t forecasting a loss for Shopify. Consensus targets suggest the e-commerce giant probably earned a profit last quarter — about $0.99 per share, on sales of $1.6 billion — helped by the fact that Shopify didn’t make the mistake of investing in any overvalued electric car companies.
And yet, at least one analyst seems sufficiently unnerved by Amazon’s results, and by weakness in retail in general, that he cut his price target on Shopify nearly in half, to $550.
Citing Sensor Tower data, Deutsche Bank analyst Bhavin Shah warned that year-over-year growth in monthly active users of the Shopify app used by merchants “decelerated meaningfully” in Q1, and as such “consensus expectations are likely [too] high” for Shopify’s report this week.
Similarly, Shah predicts gross merchandise volume to grow only 20% y/y (to $44.8 billion), and not 25% as other analysts predict. Merchants are “witnessing slowing growth,” warns Shah, as supply chain issues depress retail sales, and as consumers shift from buying goods to buying services instead, post-Covid. Citing even more Sensor Tower data in support of this thesis, Shah adds that monthly active users of the consumer-facing ShopApp appear to have shrunk by 9% sequentially in Q1, compared to Q4 2021.
Looking farther out, Shah also sees additional difficulties as the year wears on, predicting Shopify will suffer “additional pressure [on profit margins] throughout the year.”
Given how ugly some of the numbers may look (at least relative to expectations), and how the rest of the year could also look weak in light of the margin pressures, Shah is of the view that when management gives guidance at this week’s report, it will emphasize “qualitative commentary.” That is to say, Shopify will wax eloquent on how well its business is going and what steps it is taking to grow the business in the future (such as the rumored impending purchase of asset-light fulfillment operator Deliverr for more than $2 billion). The analyst doesn’t, however, expect Shopify management to lay out specific sales or earnings targets for this year.
Unless and until Shopify proves him wrong about that, therefore, Shah is staying on the sidelines, and rating Shopify stock only “hold,” despite his $550 price target, which implies ~24% upside potential. (See Shah’s track record, click here)
The Deutsche Bank view may turn out to be the conservative look at Shopify – the average price target of $923.41 suggests ~110% upside from the current share price of $443.35. (See SHOP stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.