(CTN News) – JMP Securities recently downgraded Shopify from Market Outperform to Market Perform and removed its price target for the stock.
The downgrade was primarily driven by concerns about the company’s gross profit margin as it shifted its focus to enterprise.
Shopify has been experiencing strong momentum and gaining market share with both enterprise and offline merchants.
However, the company’s gross profit margins are facing challenges due to lower payment take rates and non-payment Merchant Solution attach rates.
The analysts at JMP Securities also noted that subscription estimates are below consensus. They attribute this to the company’s emphasis on enterprise merchants, who typically subscribe to fewer Shopify services compared to smaller merchants.
Despite these concerns, JMP Securities believes that Shopify is now better positioned to attract enterprise merchants following a sales force reorganization earlier this year and with a maturing SI (Systems Integrator) channel.
They anticipate healthy growth in Gross Merchandise Volume (GMV), which is a key metric for Shopify’s success. However, they expect lower payment fees for Plus merchants compared to Basic merchants, which could result in potentially lower payment gross profit margins.
In light of these factors, the analysts have decided to “move to the sidelines” on the stock and are waiting for a more attractive valuation before reassessing their stance on Shopify.
They acknowledge the company’s strong market position and growth potential but believe that the current challenges with gross profit margins warrant a more cautious approach.