Shares of Shopify (SHOP 0.42%) are trading down after the company's first-quarter earnings report. The company delivered solid growth on the top and bottom lines, with revenue beating Wall Street's consensus estimate, but it seems the quarter wasn't strong enough to justify high expectations heading into the report.
Bank of America analyst Brad Sills noted the company's strong results, but a difficult macroeconomic environment may continue to weigh on Shopify's growth in the near term. The analyst has a neutral (hold) rating on the shares and lowered the price target from $92 to $78, but that still implies potential upside of 24% over the current share price.
Is the stock a buy?
Despite some weakness in the broader e-commerce market, Shopify's 23% year-over-year revenue growth in the quarter looks very strong. Even management's second-quarter guidance for revenue to increase in the high-teens range looks solid. On a non-GAAP (generally accepted accounting principles) basis, which excludes the impact of the sale of the logistics business, revenue should grow in the low- to mid-20s range.
However, a few headwinds could weigh on Shopify's growth this year. While Shopify is seeing a resilient North American consumer, it noted some softness in European consumer spending. The analyst also sees Shopify's payments business continuing to pressure the company's gross profit margin, which could potentially weigh on earnings growth.
Given the mixed near-term outlook, it's difficult to say whether the stock can rebound this year and hit the analyst's price target. Nonetheless, Shopify is still one of the best e-commerce stocks to hold for the long haul, especially as it broadens its offering with artificial intelligence tools to help sellers manage their businesses.
