RBC Capital labelled Shopify as one of the most compelling growth stories. Meanwhile, Morgan Stanley slashed its price target on Shopify stock. Both the firms released research notes on the e-commerce giant on Tuesday. The price target on Shopify was lowered from $44 to $40.
Investors were informed that Shopify’s competition with Amazon in fulfillment “remains top of mind for investors”. Analyst Keith Weiss wrote that at this point, the costs of establishing the network are overshadowing the potential.
Fulfillment is likely to be a negative drag on profitability and we struggle to see how Shopify can inflect operating margins to be profitable longer-term.
Keith Weiss, Analyst, Morgan Stanley
Hold Rating
The margin and operating income estimates were lowered. Weiss also reiterated a Hold-equivalent rating. “Leveraging the work done by Morgan Stanley’s Internet team, our analysis finds that building out Fulfillment is likely just the beginning of a multi-billion dollar investment cycle with a difficult path to significant operating profitability,” he stated.
“Rather than an accretive contributor to Shopify’s earnings power, this dynamic more likely represents the growing competition across Amazon (NASDAQ:AMZN) and Shopify offerings as the two platforms’ business models increasingly collide,” wrote the analyst in his note.
“Fulfillment is likely to be a negative drag on profitability and we struggle to see how Shopify can inflect operating margins to be profitable longer-term,” he concluded.
RBC Capital Markets’ Say
Meanwhile, RBC Capital Markets analyst informed investors that “data from BuiltWith suggests Shopify’s merchants are likely to slightly decline Q3, similar to YTD trends.” The analyst maintained the price target of $60 on Shopify stock along with an Outperform rating.
“Shopify Plus, Pay and POS are showing continued momentum, which help lift MRR and take rate. Data on Buy with Prime shows limited uptake among Shopify’s merchants. While share price volatility may persist in the near term, we believe Shopify is one of the most compelling growth stories in our coverage,” stated the RBC analyst.
