2023 is so far providing a platform for turnaround stories. Shopify (NYSE:SHOP) appears to be one such name benefiting from a change in sentiment; the shares are already up by 44% year-to-date, with 24% of those gains delivered in this week's trading.
Investors were evidently happy with the e-commerce giant's latest move, with the surge coming off the back of changes to its monthly pricing plans. These affect Basic, Shopify, and Advanced plans, with all rising by roughly 33-34%.
The basic plan will now cost $39, up from $29, the Shopify plan will increase from $79 to $105, and the Advanced plan will cost $399 vs. $299 beforehand.
The company justified the hikes by noting the pricing plans have hardly changed over the last 12 years. New merchants will pay for the updated plans immediately, while for existing merchants, the new prices will go into effect by late April.
Taking into account a "relatively small incremental churn," with a total take rate of ~3% compared to 2.9% before, Baird analyst Colin Sebastian estimates 2023 will yield approximately a $200 million "subscription revenue benefit." On an annualized basis, Sebastian anticipates incremental revenues in the region between $300-350 million. The analyst also estimates around 80% of Shopify merchants use monthly plans as opposed to annual arrangements.
"Shopify remains a relatively low-cost e-commerce platform option for merchants/brands, and the company has not increased prices in many years," noted the 5-star analyst. "Moreover, we don't think these prices warrant a change for the vast majority of merchants, given the time and effort required to shift platforms, and our view that Shopify's platform, in many respects, offers superior e-commerce functionality at a reasonable price."
In line with his optimistic approach, Sebastian stays with the bulls. The analyst rates SHOP shares an Outperform (i.e., Buy) (To watch Sebastian's track record, click here)
Looking at the consensus breakdown, based on 8 Buys, 14 Holds and 1 Sell, Wall Street's analyst corps rate SHOP stock a Moderate Buy. However, most think the shares have now surpassed their fair value; the average target stands at $40.84, suggesting the stock will be changing hands for an 18% discount in a year's time. (See Shopify stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.