Newly-public Shopify Inc. is an Ottawa-based success, and analysts believe it will continue to grow.
The company created an easy-to-use, multi-channel platform which allows businesses to build a brand for themselves. The software allows businesses to easily connect with and track their clients, customers, orders, shipments, and payments, as well as utilize social media and sales points at every level.
Shopify went public earlier this year and has followed that up with early, rapid growth.
Judging by Shopify’s past performance and current product, financial analysts are “quite confident that Shopify will continue to execute in the top decile of public software companies,” wrote Richard Davis, David Hynes and Mark Belcarz of Canaccord Genuity Inc. in their initial report about the company’s IPO on June 30, 2015.
Davis, Hynes and Belcarz praise Shopify’s platform, saying it offers “enterprise-grade security, scalability, and reliability” while the merchant experience remains simple. Shopify has, “strong business momentum propelled by easy-to-use, deeply-functional subscription software.” In another report a month later, Davis, Hynes and Belcarz call Shopify “well-grounded” and they say this “bodes well for long-term prospects.”
They are also impressed with Shopify’s numbers writing that the company has more than doubled its revenues in each of the last two years and that it has “burned less than $30 million [US] in cash since inception.”
In their Nov. 4 earnings recap and research report, Brendan Barnicle and Trevor Upton, financial analysts from Pacific Crest Securities, say that Shopify shows “industry-leading growth.” Barnicle and Upton note that the accelerating growth most recently showed up in Shopify’s high third-quarter revenue which far exceeded expectations. The company reported revenue of $52.8 million, compared to an expected $47.6 million. Despite excellent revenue, Shopify has not yet reached profitability. The sentiment of “exceeding expectations” was echoed by Davis, Hynes and Belcarz.
The Canaccord Genuity analysts also filed a US Equity Research report at the end of July, following Shopify’s second-quarter results, and similarly noted the excellent financial performance. David, Hynes and Belcarz reported that many people were “shocked at the magnitude of the upside [of the numbers].”
The “continued momentum” of these impressive results have analysts, and even Shopify itself, raising expectations for the fourth-quarter numbers.
Share price peak
Though the company is doing well, both financial companies say they are hesitant to recommend investors consider buying Shopify shares because they note their current high price. David, Hynes and Belcarz write that Shopify is the most expensive cloud software they track, and Barnicle and Upton follow up this same statement by relating that this is fair “due to [Shopify’s] top-line growth.”
The Canaccord Genuity analysts gave Shopify a HOLD rating, meaning that the stock is “expected to generate risk-adjusted returns of 0-10 per cent during the next 12 months.” They say they want to wait until the stocks drop slightly before recommending a purchase.
The Pacific Crest Securities analysts also highlight some potential investment risks. For all their positive predictions, Barnicle and Upton admit that market and macroeconomic conditions could interfere with their estimates. Shopify strives to gain new customers and retain existing ones, however Barnicle and Upton worry if this model is wholly sustainable and note that should these numbers drop, the negative impact would be greatly felt. They also note that the market is competitive and this increased competition could put pressure on Shopify in areas such as pricing.
Expanding onto social media
Barnicle and Upton do also take time to point out some positive changes Shopify has made recently. Earlier this year Shopify announced new social commerce products by partnering with Twitter, Facebook, and Pinterest – and the Pacific Crest Securities analysts say this is the only platform to offer commerce through all three platforms. They believe this “should help drive merchant additions” even though they note these products are too new to see what overall positive impact they will have. The progress since this announcement has been good so far, they report, and the numbers are encouraging.
Shopify also announced a shipping partnership with the United States Postal Service but it is unlikely that this will drive revenue in 2015. Barnicle and Upton like these newest additions to Shopify’s platform, but they might not have immediate positive impact.
Shopify has certainly proven itself in the business world and it has many strengths to keep itself at the forefront of the industry. Shopify is also bolstered by positive media coverage, receiving the Ottawa Business Journal’s Newsmaker of the Year award, as well as the award for Finance Deal of the Year, in November.
It has been a busy and exciting year for Shopify and analysts seem positive going into the future with this company. Davis, Hynes and Belcarz write “we had, and have, high expectations for this firm.”
Shopify declined any opportunity to comment for this story.