Goldman boosts Shopify price target to $1318

Goldman Sachs raised Shopify’s price target on Tuesday to $1,318 from $1,286, maintaining its buy rating of the stock. The firm noted the company’s gross merchandise value (GMV) which accelerated exponentially and the company’s ability to innovate to problem-solve key problem areas for merchants. Yahoo Finance’s Final Round panel breaks down the firm’s call and what it means for e-commerce.

Video Transcript

MYLES UDLAND: It's time now for our call of the day, though. And we're talking about Goldman Sachs's latest note on shares of Shopify. The firm maintaining its buy rating, increasing its price target to $1,318 a share. That is up from $1,286. So Goldman was still quite bullish on the name. Shopify bucking the market's broader trend today, up about 1.7%. And there are few stocks that have really defined the pandemic period quite the way that Shopify has. I would say that Zoom would certainly fit into that basket, Peloton as well.

And Goldman here uses a phrase that maybe I've leaned on too often here on the program, but you know, they say a step-function change. I have said step change for various types of market opportunities. But Goldman here is going with that same idea that what happened during COVID for Shopify, where every merchant had to have an online presence, and Shopify is the easiest way for businesses to make that happen. That, Melody Hahm, is basically the thesis here.

And I will be very interested to see how a name like Shopify performs if the market starts to sniff out, like, a more normalized economy, right? We've seen Peloton and Zoom and Shopify do so well on the back of an assumption that the world changed forever. But what if it didn't? You know, what does Shopify's business look like in the middle of next year if we are talking about people going back to the office and, you know, whatever 2019 was starts to become something more like real life?

MELODY HAHM: I can appreciate the extreme bullishness though from Goldman. Because in my mind, Shopify is actually even in a different category than the Zooms and Pelotons because it's very much the infrastructure for business to even exist. You talk about how a lot of the larger enterprise plays, specifically who use Shopify Plus, which is the big revenue-generator here, they're the ones who, perhaps, had a large brick-and-mortar presence, had a lot of physical stores, and then they wanted to really bolster the online community and make sure that the DTC side of things was robust. But if you think about it, so many of the brands that emerged out of this era, whether it's a dog food store, whether it's athleisure, they don't rely on anything except Shopify. You know, the entire core structure-- not only the foundation, but all of the interactions, all of the transactions-- are looking that way.

And I can tell you firsthand, now I'm surprised-- I shouldn't be so surprised anymore, given the fact that every new brand that I'm exploring, if I'm exploring the cart, if I add something to my cart, immediately it goes to Shopify, right? In the past, it used to be perhaps one out of five brands. It felt like that was the interaction and that was a UX, and now I'm seeing that Shopify is the underlying infrastructure for a lot of these brands from the get-go.

MYLES UDLAND: Yeah.

MELODY HAHM: I want to touch upon that Plus brand specifically. Just like so many of these businesses that originally started by serving SMBs, right? Trying to showcase all of the nascent, interesting innovations that are happening, ultimately, Shopify is going to rely on large enterprise customers in order to keep this momentum growing. To your point though, Myles, I don't know how much more room to run there is in that side of the business.

I know there will always be, you know, mom-and-pop stores that are trying to create a very shell-like infrastructure for their online presence. But when it comes to actually having those intense fulfillment offerings, additional support that Plus comes with, I think we may be maxed out by the end of this pandemic, in terms of the number of customers who need those offerings.

MYLES UDLAND: Yeah, though I would say-- and I agree. I think, you know, we're maybe looking at this too myopically, and Seana, I think Goldman would agree because they have estimates for the company running out to fiscal year 2040-- very impressive stuff. You don't often see analysts outlined the number of merchants that could be a platform in 20 years.

SEANA SMITH: Yeah, that was interesting, and that also caught me a little off guard because the fact that-- I mean, you almost can't equate anything we're experiencing now to anything that we've seen in the past. Because I feel like as we see businesses change your models and have different forecasts and in a lot of ways, take away their guidance, it almost seems like analysts are still being a little bit more bullish. And they're willing to go out on the limb and, in Goldman's case right here, estimate what Shopify could be like in 20 years. So I also thought that that was interesting when they threw in some of those 2040 targets.

But Myles, bringing it back to what you were originally talking about with the valuation perspective of this company, what is it going to be like if hey, maybe some of these changes that we initially thought had been accelerating, maybe they don't stick. Maybe in a year or two from now, consumers go back to the behaviors that they were experiencing before the pandemic. I do think that that is a risk for Shopify, just given-- just strictly from a valuation perspective.

Because Shopify's market value is right around $107 billion. It's way bigger than some of those retail giants that we talk about all the time, like Target, for example. It's way bigger than Target, even though it has a fraction of their sales, a fraction of their profits. So I think the fact that this is a stock that has really almost tripled from that March low-- it's doubled so far this year. I think you wouldn't be too risk or going out too much on a limb in order to kind of question the valuation of whether or not we could see a pullback here, at least in the short term.

But I do agree with Melanie. I mean, Shopify is a company that a lot of these retailers, they need to use it if they're going to survive. The pandemic has accelerated a lot of these consumer shifts in behavior. Even though maybe it's not going to be 100% of these consumers that stick with this new behavior, there's still going to be a lot more people who are gravitating to buying their products online than they were before the pandemic going into stores.

So Shopify is a clear winner here. They proved it during the pandemic. It's one of the biggest out-performers. You compared it at the top of the segment to Peloton. I think that's exactly right. And Goldman, again, being one of these analysts that are trying to almost chase the stock. And I don't mean that in a negative way, but it's almost-- it's so hard to keep up with these massive out-performers in a market where it almost seems like nothing is going to stop their momentum, at least in the short term.

MYLES UDLAND: Yeah, and I think it's totally fair to concede that Shopify has just an absolutely incredible business model where they grow alongside with all of their customers. And the entire point is that when-- you know, their-- when the people who pay Shopify a fee grow their business, Shopify grows along with them and actually takes a decreasing cut of that success as they go along. It's a tremendous business model.

At 100 times sales, it is more difficult for analysts to kind of get all the way there. But I think, you know, the tensions here between the investor class, the way that, you know, maybe sort of the tech-type investor sees it and the way that Wall Street analysts see it, a very interesting kind of dance that I think we're going to see play out for many, many years to come.