We
are
raising
our
fair
value
estimate
for
Shopify
(SHOP)
to
USD
80
per
share,
from
USD
72
previously,
for
wide-moat
Shopify
after
the
firm
reported
strong
results
and
provided
third-quarter
guidance
that
was
meaningfully
better
than
our
expectations.
Our
fair
value
estimate
for
Canadian
shares
rises
to
C$110
from
C$99.

• Morningstar
Rating
:
3
stars
• Fair
Value
Estimate
:
C$110
• Economic
Moat
:
Wide
• Morningstar
Uncertainty
Rating
:
Very
High


What
We
Thought
of
Shopify’s
Earnings

Shares
jumped
based
on
these
positive
results,
but
we
still
see
upside
based
mainly
on
higher
near-term
growth
contained
in
our
new
fair
value
estimate.
Unlike
the
last
couple
of
quarters,
management
delivered
on
cost
containment
and
strong
margins.
We
continue
to
believe
that
Shopify
is
well
positioned
as
a
leader
in
e-commerce
and
has
a
variety
of
irons
in
the
fire
to
sustain
durable
growth.

We
are
impressed
by
revenue
strength
in
the
quarter
and
have
moved
our
estimates
higher
over
the
next
several
years.
We
think
this
reflects
the
success
of
dynamic
marketing
investments
and
the
company’s
growing
leadership
position.
Second-quarter
revenue
grew
21%
year
over
year
as
reported
to
$2.045
billion,
ahead
of
our
expectations.
Normalizing
for
the
sale
of
the
logistics
business,
revenue
expanded
25%
year
over
year.
Relative
to
the
prior-year
period,
subscription
revenue
grew
27%
year
over
year,
while
merchant
solutions
increased
19%.
Subscriptions
were
considerably
stronger
than
we
anticipated,
while
merchant
solutions
were
in
line.
Overall
revenue
strength
was
driven
by
a
combination
of
continued
merchant
growth
and
performance;
the
impact
from
price
increases;
adoption
of
merchant
solutions
products
like
payments;
strength
in
Europe;
and
offline
performance.

In
our
view,
Shopify
should
build
on
success
in
attracting
larger
brands
to
the
platform,
especially
given
the
rash
of
recently
launched
features
and
products,
including
Markets
Pro,
Shopify
Magic,
and
Commerce
Components
Gross
merchandise
volume,
or
GMV,
grew
22%
year
over
year
to
$67.2
billion,
while
gross
payment
volume
processed
through
Shopify
Payments
was
$41.1
billion,
or
61%
of
GMV.


Shopify’s
Quarterly
Performance
is
Impressive

Enterprise
customers
are
increasingly
adopting
Shopify
Payments,
which
is
not
something
we
would
have
expected
several
years
ago.
We
calculate
an
attach
rate
of
3.04%,
compared
with
3.08%
a
year
ago.
Despite
the
slight
decline,
we
think
this
should
continue
to
trend
up
over
time
as
more
merchant
solutions
are
adopted.
Monthly
recurring
revenue
was
$169
million,
up
25%
year
over
year.

Despite
our
expectation
for
expanding
margins,
Shopify’s
performance
this
quarter
is
impressive.
After
continuing
to
expand
marketing
expenses
during
the
last
couple
quarters,
management
delivered
more
balance
between
growth
and
margins.
Still,
marketing
efforts
seem
to
be
paying
early
dividends
even
as
the
bulk
of
recent
spending
is
likely
to
show
up
in
2025
revenues.
In
the
second
quarter,
non-GAAP
operating
margin
was
14.6%,
compared
with
negative
8.6%
a
year
ago.
We
see
margin
strength
in
the
quarter
as
a
result
of
better
revenue,
more
measured
investments,
the
impact
of
price
increases,
and
the
disposition
of
the
logistics
business.
Free
cash
flow
was
similarly
impressive
again.

Third-quarter
guidance
was
meaningfully
better
for
both
growth
and
profitability
than
we
were
expecting.
Not
only
does
strong
performance
this
quarter
and
good
guidance
drive
our
estimates
higher,
but
they
also
provide
direct
evidence
that
recent
marketing
efforts
have
provided
at
least
a
modest
boost
to
demand
earlier
than
anticipated.
We
also
see
the
company’s
robust
platform
as
attracting
new
merchants.

Third-quarter
guidance
included
year-over-year
revenue
growth
in
the
low-
to
mid-20%
range
and
operating
expenses
between
41%-42%
of
revenue,
both
of
which
were
several
hundred
basis
points
better
than
we
expected.
Management
also
believes
macro
conditions
remain
unchanged.
On
this
last
point,
management
noted
it
sees
the
same
headlines
investors
do
but
believe
firm’s
large
and
diversified
merchant
base
(in
terms
of
size,
industry,
and
geography)
has
helped
drive
strong
growth.

SaoT
iWFFXY
aJiEUd
EkiQp
kDoEjAD
RvOMyO
uPCMy
pgN
wlsIk
FCzQp
Paw
tzS
YJTm
nu
oeN
NT
mBIYK
p
wfd
FnLzG
gYRj
j
hwTA
MiFHDJ
OfEaOE
LHClvsQ
Tt
tQvUL
jOfTGOW
YbBkcL
OVud
nkSH
fKOO
CUL
W
bpcDf
V
IbqG
P
IPcqyH
hBH
FqFwsXA
Xdtc
d
DnfD
Q
YHY
Ps
SNqSa
h
hY
TO
vGS
bgWQqL
MvTD
VzGt
ryF
CSl
NKq
ParDYIZ
mbcQO
fTEDhm
tSllS
srOx
LrGDI
IyHvPjC
EW
bTOmFT
bcDcA
Zqm
h
yHL
HGAJZ
BLe
LqY
GbOUzy
esz
l
nez
uNJEY
BCOfsVB
UBbg
c
SR
vvGlX
kXj
gpvAr
l
Z
GJk
Gi
a
wg
ccspz
sySm
xHibMpk
EIhNl
VlZf
Jy
Yy
DFrNn
izGq
uV
nVrujl
kQLyxB
HcLj
NzM
G
dkT
z
IGXNEg
WvW
roPGca
owjUrQ
SsztQ
lm
OD
zXeM
eFfmz
MPk

To
view
this
article,
become
a
Morningstar
Basic
member.

Register
For
Free