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Shopify’s Rating Boosted to Overweight at Morgan Stanley

Morgan Stanley upgraded Shopify (NYSE:SHOP) to Overweight from Equal-Weight and raised their price target to $85 from $74, reflecting increased confidence in Shopify’s potential for sustained growth, driven by its successful penetration into larger market segments and effective headcount management.
Shopify is making strategic advances into bigger markets and expanding its international footprint, which Morgan Stanley expects will deliver a compound annual growth rate (CAGR) of over 20% through 2030. The year 2025 is highlighted as critical for Shopify’s revenue, dubbed the “Year of the Take Rate,” with projections that advertising could boost the total take rate by approximately 100 basis points by 2030.
Morgan Stanley also addressed concerns about recent negative revisions to Shopify’s fiscal year 2024 operating margins, suggesting these may have been overstated. The analysis suggests potential for margin performance to exceed market expectations. Additionally, the firm views Shopify’s valuation as attractive based on normalized free cash flow for 2024 to 2026.
Despite previous worries about the sustainability of margin expansion after the fourth-quarter results, Morgan Stanley views the market’s response as an overcorrection. They note that Shopify’s planned modest headcount growth for 2024 should support further operating leverage and free cash flow growth, reinforcing their positive outlook on Shopify’s stock.

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