Morgan Stanley analyst Keith Weiss maintained Shopify Inc (NYSE:SHOP) with an Equal-Weight and lowered the price target from $44 to $40.
Analysts Weiss and Brian Nowak assume competition with Amazon.com Inc (NASDAQ:AMZN) Buy With Prime and other logistics competitors will result in Shopify Fulfillment’s attach rate to GMV tracking roughly half that of Fulfillment by Amazon (FBA) since 2006.
Morgan Stanley had an Overweight rating and a $175 price target on Amazon.
The team notes that the attach rate for Shopify Fulfillment Network (SFN) has been modest. Still, management expects volumes to begin to scale in 2023-2024 and hopes the acquisition of Deliverr will help to pull forward network development.
Based on the team’s analysis, Fulfillment will likely affect profitability negatively. The team struggled to see how Shopify could inflect operating margins to be profitable longer-term.
The analyst estimates that FBA for Amazon only requires marginal incremental operating expense spending, given that the offering essentially sits upon the network and processes already created to support Amazon’s 1P and 3P businesses.
The pre-COVID FBA EBIT margins were in the low single-digit range but dipped negative over the prior three years due to operational inefficiencies.
Amazon is developing (or has developed) 8+ offerings to help third-party merchants sell/fulfill/ship volumes off of Amazon.
Nowak is bullish on these offerings. They help Amazon better address the ~$620 billion of U.S. e-commerce GMV not sold on Amazon. Incremental volumes flowing across Amazon’s logistics network can drive (in the near term) faster and (in the long-term) more durable efficiencies, scale economies, and higher profitability.
Price Action: SHOP shares traded lower by 4.95% at $31.31 on the last check Tuesday.
