There's no doubt that Shopify (NYSE: SHOP) had a fantastic second quarter. Given what happened in the second quarter, and the degree of difficulty for the business that that represented, delivering even weakly positive news is embraced as a minor miracle. So for Shopify to so thoroughly beat Wall Street consensus represents a major new development for the field. That's led to more than one new price target coming out for the company, and Wall Street analysts seem to be expecting more of the same out of this company to come.
Betting on a Winner
New ratings emerged from several fronts. Rosenblatt Securities maintained its “buy” rating on Shopify, despite the hefty new gains the company has realized, and also revised its price target upward. Significantly, too; analyst Mark Zgutowicz took the price target from $985 to a much higher $1,400, representing a 42.13% increase.
The new Rosenblatt price target represents the new high out of 25 TipRanks analysts, who currently hold price targets in a range of $650 at the low end to the high of $1,400, Rosenblatt's current figure. The average for the group seems to be almost dead on in the middle, coming in at $1,025.83.
A Growing Consensus for Victory
Rosenblatt's price target may have been the new high point for expectations on Shopify, but it was hardly alone in at least elevated expectations. Goldman Sachs boosted its rating from “neutral” to “buy”, and put a price target away from the TipRanks median at $1,127. SunTrust Banks bolstered its own price target, which started at $700 but increased to $1,100.
Not everyone was quite so optimistic, but even the pessimists among Shopify analysts suggest at least some further good news to come. Wells Fargo, for example, left its rating at “hold”, and Canaccord Genuity gave the price target a slight upward cant, going from its original $650 price to a new target of $700.
Our own research has found some positive consensus about Shopify's future; though the average price target from our study is well below current levels—the average price target is $838.07, well off yesterday's close of $1,053.59—but the consensus trends toward hold leaning toward buy, with just two analysts at “sell”, 19 at “hold”, and the remaining 11 at “buy.”
Driving the Call to Victory is...More Victory
Perhaps the biggest reason so many analysts are revising their estimations of Shopify's future fortunes is the incredible day it had yesterday on its earnings call. Revenue was nearly doubled from 2019's second quarter, hitting $714.3 million in the second quarter of 2020. Analysts expected gains—gains sufficient to hit $513.83 million in revenue—but not the kind Shopify put up.
The biggest reason behind these hefty new gains is a familiar one: as the coronavirus pandemic and resulting lockdown responses stepped up, businesses were looking for a way to actually continue doing business, and that meant online operations for many. While a lot of the bigger businesses had their own web presences, many either didn't, or weren't getting much reach out of them, so opening up operations on Shopify—which was getting quite a bit of traffic—made sense.
With so many new businesses coming in to join Shopify, it could open up something of a “virtuous cycle”, as it's known; the new businesses coming in brought new traffic, and the growing traffic numbers got other businesses interested, which in turn brought still more new traffic. Just a few weeks ago, we pointed out how Shopify was making new and even somewhat unexpected connections with places like Chipotle Mexican Grill (NYSE: CMG) that effectively allowed the duo to create a kind of “farmer's market” using Chipotle suppliers as the vendors therein.
Online shopping has made a lot of headway over the last few years, and the pandemic has only accelerated the push to online shopping. People still want that brick-and-mortar option, and it's likely to be around for some time assuming it's allowed to be by government mandate. Tools like Shopify will only help fuel that pushes and give companies more options to get their products and services into customer's hands.
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist
20 Stocks Wall Street Analysts Love the Most
Every trading day, between 500 and 800 new recommendations and research reports are issued by sell-side equities research analysts. There are between 300 and 500 brokerages and research houses that issue ratings, price targets and recommendations and more than 5,000 securities around the world that regularly receive coverage from research analysts.
MarketBeat has tracked more than 170,000 distinct analyst recommendations in the last 12 months alone. Given the volume of ratings changes that occur each day, it can be difficult to sift through the noise.
Analysts don't always get their "buy" ratings right, but it's worth taking a hard look when more than a dozen different analysts from different brokerages and research firm are giving "strong buy" and "buy" ratings to the same stock.
This slide show lists the 20 companies that have the highest average analyst recommendations from Wall Street's equities research analysts over the last 12 months.
View the "20 Stocks Wall Street Analysts Love the Most".