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Shopify (SHOP) Downgraded to Strong Sell on Weak FY17 View (Revised)

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On Mar 24, Zacks Investment Research downgraded Shopify Inc. (SHOP - Free Report) to a Zacks Rank #5 (Strong Sell). The downgrade reflects negative estimate revision following an unimpressive full-year 2017 outlook and growing near-term headwinds.

Key Factors

The Zacks Consensus Estimate for the current year widened to a loss of 73 cents compared with loss of 40 cents over the last 60 days. The wider loss estimate reflects higher operating losses projected by Shopify management for 2017. The company expects to post operating losses in the range of $18-$22 million compared with $12.1 million reported in 2016.
 

Shopify Inc. Price and Consensus

Shopify Inc. Price and Consensus | Shopify Inc. Quote

Shopify plans to add partners as well as merchants throughout the year. The company’s aggressive investment plans for 2017 are expected to hurt profitability. Shopify hired almost 1000 employees in 2016 and expects to employ roughly the same number of people in 2017.

Stock Price Movement

We note that Shopify has outperformed the Zacks Internet Services industry on a year-to-date basis. While the stock increased 68.9%, the industry gained 8.1%. The upside can be attributed to the company’s continuing new merchant addition and reduction in payment cost.

However, a wider loss will hurt the momentum going ahead.

Stocks to Consider

One may consider some better-ranked players in the industry like Autohome (ATHM - Free Report) , Internap and MeetMe . While Autohome sports a Zacks Rank #1 (Strong Buy), Internap and MeetMe carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Autohome, Internap and MeetMe are currently pegged at 16.45%, 3% and 20% respectively.
 

(We are reissuing this article to correct a mistake. The original article, issued on Mar 24, 2017, should no longer be relied upon.)


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