Shopify's stock looks to snap six-session losing streak after BofA upgrade

By Emily Bary

BofA analyst says the e-commerce company is 'turning a corner on balanced growth and margin'

Shopify Inc. shares have struggled this year, but BofA Global Research thinks that could change.

Analyst Brad Sills upgraded Shopify shares (SHOP) to buy from neutral on Tuesday, writing that the Canada based e-commerce company is "turning a corner on balanced growth and margin."

"Revenue growth and disciplined spending point to healthy margin expansion going forward," Sills added, noting that the company's business mix is transitioning away from lower-margin payments offerings in a trend that could stabilize gross margins - which have declined 650 basis points since fiscal 2017.

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The company is also taking a more cautious approach to its spending, in his view, as reflected by efforts such as a more rational stance on headcount.

Meanwhile, Sills expects Shopify to pick up market share in the expanding e-commerce arena. The company's gross merchandise volume recently has outpaced the general growth in e-commerce by more than two times, and he thinks that Shopify's large base of 2.5 million merchants and expansive platform can power more share gains.

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Sills said the upgrade isn't a prediction about Shopify's coming earnings report, though he also noted that BofA's online spending report found that overall e-commerce spending accelerated in the second quarter relative to the first quarter.

He boosted his price objective on Shopify shares to $82 from $78, with the new target implying 28% upside from Monday's close. Shopify shares are ahead more than 5% in Tuesday trading and on pace to snap a six-session losing streak.

Shopify's stock had been down nearly 18% on the year through Monday's close.

Sills thinks Shopify shares command a "reasonable multiple," and his $82 price objective implies a 10x multiple of enterprise value to estimated 2025 revenue. That translates to a 0.5x growth-adjusted multiple, "in line with the large-cap software group," he said.

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-Emily Bary

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07-16-24 1056ET

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