What Happened?
Shares of e-commerce software platform Shopify (NYSE:SHOP) jumped 5.4% in the morning session after Loop Capital analyst Anthony Chukumba upgraded the stock from Hold to Buy and assigned a price target of $140. The price target implied a potential 15% upside from where shares traded before the upgrade was announced. The analyst cited Shopify's AI potential, adding "We believe investors are underappreciating how Shopify is utilizing AI to not only better serve its merchants (most notably, under the Shopify Magic umbrella) but also internally (including in customer support, sales, human resources, and even accounting and finance)." The AI thesis informed the improved growth outlook for Shopify, with Chukumba expecting "20%+ growth over the next several years while its operating expenses increase at a much slower rate, which will result in additional operating and free cash flow margin expansion."
After the initial pop the shares cooled down to $119.33, up 4.6% from previous close.
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What The Market Is Telling Us
Shopify’s shares are quite volatile and have had 15 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 24 days ago when the stock gained 25.7% on the news that the company reported impressive third-quarter financial results. GMV (gross merchandise value) exceeded analysts' expectations, enabling it to beat Wall Street's revenue estimates and provide Q4 revenue guidance that came in higher than anticipated. On top of that, its revenue growth accelerated, and it produced a 19.5% free cash flow margin, showing that it can balance growth and profits. Overall, we think this was a solid quarter that revealed improved growth momentum.
Shopify is up 61.6% since the beginning of the year, and at $119.33 per share, has set a new 52-week high. Investors who bought $1,000 worth of Shopify’s shares 5 years ago would now be looking at an investment worth $3,273.
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