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Harley Finkelstein, COO, Shopify
Scott Mlyn | CNBC
There’s an up and coming company you may not know much about that’s gearing up to compete with Amazon in a big way… and Wall Street analysts’ believe it has a fighting chance.
Last week, Canada-based Shopify unveiled its “shopper fulfillment network” a new service that will allow third-party merchants to better compete with Amazon on delivery times. Analysts cheered the move and the stock jumped 7% last week, adding to its already big gains on the year.
Shopify is a platform that helps merchants and brands create an online store, manage products, payments and shipping. With this new launch, it’s now acquiring warehouses in various parts around the U.S. and Canada and integrating AI in order to get customers their goods more quickly and easily.
“Similar to how Amazon built its fulfillment center network over the years to support Amazon Prime two-day (and now one-day) shipping, we also expect Shopify Fulfillment Network to grow and improve the value proposition for merchants significantly,” Barclays said in a note to clients. The firm increased their price target to $310 from $225.
Consumer packaged goods is one area where Shopify can thrive, according to analysts at Rosenblatt. This allows a business to take its product “direct-to-consumer” and avoid competition with the likes of Amazon and Walmart.
“Consumer packaged brands have long been squeezed on the margin (pun intended) by Amazon and Walmart, and are increasingly being boxed out by their private label ambitions,” Rosenblatt said. The firm also called it an, “unpenetrated opportunity.”
“Management showed yet another ace up its sleeve with its announced Shopify Fulfillment Network.”
This will also help ease merchant fears about Amazon doing a so-called “white labeling” of products as well, say analysts at Summit Insights. White labeling is when a company sells goods under its own brand but removes the logo or brand of the maker of the product.
“Merchants have expressed reservations when doing business on Amazon’s platform including concerns of Amazon white labeling their own product to compete,” Summit Insights said. “With SHOP’s fulfilment Network, we see merchants eagerly exploring this alternative to their worst retail nightmare.”
“This is big: Amazon alternative,” they said.
Here’s what analysts are saying about Shopify:
Barclays- Equal weight rating, price target to $310 from $225
“The launch of Shopify fulfillment network was well received by the investment community as shares have traded up +11% vs. (Nasdaq +2%) since the announcement this week. The fulfillment solutions should enable SHOP to not only capture incremental economics from logistics but to also improve customer stickiness meaningfully long term…Similar to how AMZN built its fulfillment center network over the years to support Amazon Prime two-day (and now one-day) shipping, we also expect Shopify Fulfillment Network to grow and improve the value proposition for merchants significantly.”
Goldman Sachs- Neutral rating
“The company announced the Shopify Fulfillment Network, allowing merchants to ship product to customers via a network of fulfillment centers across the US. Machine learning will be utilized to optimize demand forecasting, inventory allocation across warehouses, and order routing. At scale, SHOP expects fulfillment will allow merchants to deliver to 99% of the continental USA within two days or less, making it more competitive with Amazon. We believe this is a significant development as long wait times for delivery along with high shipping costs often led to lost sales and lower customer satisfaction.”
Rosenblatt- Buy rating, price target to $395 from $295
“Management showed yet another ace up its sleeve with yesterday’s announced Shopify Fulfillment Network. SHOP merchants will soon have a robust and intelligent back office solution for managing inventory and getting orders delivered 2-day coast-to-coast, driving significant incremental GMV to the platform. The subsequent business scale, discussed below, drives our DCF-based price target from $295 to $395…Consumer packaged goods remains big unpenetrated opportunity. Shopify Plus head Loren Padelford confirmed our earlier notion that Shopify is quietly emerging as “the” DTC platform for CPG. CPG brands have long been squeezed on the margin (pun intended) by Amazon and Walmart, and are increasingly being boxed out by their private label ambitions. CPG is also getting pushed on the other end of the spectrum by new flashy brand entrants.”
Canaccord- price target to $360 from $270
“In our view, Shopify is getting to point at which breadth of product, vibrancy of partner ecosystem, and general retail scale will enable the firm to pull away at an exponential pace. This is a best-in-class growth story at scale, which is why we continue to like Shopify and are bumping up our target to $360 ahead of a more strenuous valuation analysis later this summer. We’d own at least a partial position in SHOP today and look to fill it out with market pullbacks.”
Baird- Outperform rating, price target to $360 from $269
“Management announced the new Shopify Fulfillment Network, a partner-driven logistics infrastructure that will provide storage and shipment solutions to the company’s merchant ecosystem. While the company plans to invest $1B into its fulfillment network over the next five years, Shopify is taking a relatively asset-light approach to its fulfillment rollout by leveraging 3P fulfillment partners. Given the significant near-term investments required to scale, the company expects the bulk of the return to come after 2023, but new fulfillment services should reduce churn and customer acquisition costs as Shopify looks to provide merchants with a viable alternative to Amazon.”
Summit Insights- Buy rating
“This is big: AMZN alternative. Merchants have expressed reservations when doing business on AMZN’s platform including concerns of AMZN white labeling their own product to compete. With SHOP’s Fulfilment Network, we see merchants eagerly exploring this alternative to their worst retail nightmare. In addition, with SHOP’s international expansion with an introduction of eleven native languages and currency exchanges/transfers announced during Unite, merchants would have another reason to utilize SHOP’s platform versus AMZN’s (or even Magento’s, Bigcommerce’s).”
