Shopify (NYSE: SHOP) stock tumbled about 6% in intraday trading Friday after Bank of America trimmed its price target, citing margin pressures.
Brad Sills, an analyst at BofA Securities, recently made a significant adjustment to the price target for Shopify (SHOP) shares, a prominent e-commerce platform, reducing it to $78 from the previous $92 while maintaining a Neutral rating on the stock.
The decision to revise the price target comes against the backdrop of ongoing macroeconomic pressures impacting Shopify’s Gross Merchandise Volume (GMV), coupled with the company’s lower-margin payments business squeezing its gross margin.
Sills noted that the challenges surrounding Shopify’s GMV show no signs of abating. With the payments segment continuing to exert downward pressure on gross margins and Shopify’s cautious investment approach in growth areas beyond payments, the analyst anticipates that the prevailing dynamics are unlikely to shift in the short term.
Despite Shopify’s shares presenting a comparatively attractive proposition for a software stock, trading at 7.4 times its estimated 2025 revenue compared to 8.7 times for other large-cap software companies, BofA suggests that when juxtaposed with payment stocks trading at 6 times, Shopify’s valuation appears more balanced.
The reaffirmation of the Neutral rating by BofA Securities, coupled with the lowered price target of $78, underscores concerns surrounding gross margin pressure and near-term macroeconomic headwinds.
The new price target reduces the multiple of Shopify’s estimated 2025 Enterprise Value to Sales from 10.4 times to 9.4 times. This valuation aligns with that of the larger-cap software group, adjusted for growth.
Shopify (NYSE: SHOP) Stock Price Action
SHOP stock plunged 5.62% to close at $58.94 on Friday. Its value decreased by 20.84% this week. Trading activity has witnessed 30,675,580 (30.67 million) shares changing hands, well above the average daily volume of 10.12 million.
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