UPDATE: Goldman Sachs Starts Shopify (SHOP) at Buy; Guidewire (GWRE), Hubspot (HUBS), Veeva (VEEV) Rated Neutral
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(Updated - October 4, 2016 8:34 AM EDT)
Goldman Sachs initiated coverage on Shopify (NYSE: SHOP) with a Buy rating and a price target of $50. Guidewire Software (NYSE: GWRE), HubSpot (NYSE: HUBS), and Veeva Systems (NYSE: VEEV) were initiated at Neutral.
Analyst Jesse Hulsing said Shopify is evolving from a tool for online store creation to a platform for SMB commerce.
Hulsing explained, "This is driving two dynamics, in our view. First, a flywheel effect is emerging where more services/value drive customer growth and, in turn, more services. We believe this should help sustain merchant share gains, and our bottom-up analysis of SHOP’s TAM implies SHOP is <10% penetrated. Second, incremental services have a higher contribution margin, helping SHOP to emerge as the most efficient model in our sample, even on a gross margin adjusted basis. We believe this efficiency should help drive faster-than-consensus FCF and operating margin expansion."
The analyst continued, "We also view HUBS as well positioned for sustained growth and margin expansion but are concerned about slowing gross marketing customer adds, which could be a headwind to growth."
Discussing Guidewire and Veeva, the analyst said, "The defensibility and predictability of vertical specific software has driven significant relative multiple expansion (Exhibit 15). Our analysis indicates that the sub-segment is more expensive relative to growth software (>20% y/y) than at any time in the past 12 years, despite 1500bps lower consensus NTM sales growth on average. We are skeptical that this relative multiple expansion can continue given the lower growth profile of these names, and are Neutral rated on GWRE and VEEV."
Shares of Shopify closed at $43.03 yesterday.
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