Shares of Shopify Inc. (SHOP, +0.34%) dropped approximately 1% in after-hours trading on Monday following a rating downgrade by Evercore ISI analyst Mark Mahaney. Mahaney revised his rating on the e-commerce giant from outperform to in-line, citing a less compelling risk-reward balance. While Shopify’s stock price has nearly doubled in 2023, Mahaney acknowledges that this surge followed a significant 75% decline in 2022.
Mahaney recognizes the validity of the year-to-date surge in Shopify shares, attributing it to improved fundamentals, cost optimization efforts, and a strategic shift away from a fully integrated shipping/logistics model. Nevertheless, he highlights the lack of clear catalysts for future growth. Mahaney emphasizes that his decision to downgrade is primarily based on valuation.
According to Mahaney, his target price for Shopify shares is $69, which is based on a 10-times multiple of enterprise value to sales. Among companies covered in his internet analysis, only Trade Desk Inc. (TTD, +3.06%) possesses a higher multiple at 17-times. Although Trade Desk shares a similar revenue-growth outlook with Shopify, it demonstrates more consistent historical margins.
In conclusion, the downgrade of Shopify shares by Evercore ISI analyst Mark Mahaney reflects a cautious stance based on valuation. Despite acknowledging the recent surge in share price, Mahaney identifies a lack of clear catalysts for future growth, prompting the rating downgrade.
