Overview#

Piper Sandler has recently started covering Shopify, giving it an Overweight rating and setting a price target of $165. The firm believes Shopify is well-positioned to thrive as online shopping continues to grow, despite its current valuation being described as relatively high.

Key Reasons for Positive Outlook#

Piper Sandler identified three main factors that support its favorable view of Shopify:

  1. Revenue Growth Potential: The firm analyzed Shopify’s merchant groups and found that revenue growth could surpass market expectations. They predict Shopify's revenue could increase by about 28% year-over-year by 2027, which is higher than the 24% growth anticipated by the market. This optimism is based on strong trends among new merchants, with revenue from first-year merchants projected to jump from $370 million in 2022 to approximately $980 million in 2024.
  1. Opportunities in Payments: Piper Sandler sees significant potential in Shopify's financial services, such as Shop Pay and its point-of-sale system. They estimate that over $50 trillion in global economic activity remains untapped for these services, indicating that Shopify's payment solutions are still in the early stages of adoption. Currently, offerings like installment payments and Shopify Capital are available in only a few countries.
  1. E-commerce Leadership: Piper describes Shopify as the “gold standard” for e-commerce platforms, especially as it attracts larger enterprise clients. Their research indicates that merchants selling over 100 units per month face high costs if they switch away from Shopify. Additionally, around 80% of the largest e-commerce sites still use custom systems instead of mainstream web builders, presenting a significant opportunity for Shopify.

Valuation Insights#

According to Piper Sandler, Shopify shares are trading at about nine times their estimated revenue for 2027 and around 19 times gross profit. They noted that this valuation is near the lower end of its range over the past several years, suggesting potential for growth as the company continues to expand.