It’s no secret that e-commerce was a big winner over COVID, with the already growing movement of retail online only picking up its pace during pandemic lockdowns and shuttered storefronts.
And Canadian companies are reaping the benefits, as is evident with sector juggernaut Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP) making huge strides over the past year and a half. But two other names deserve mention as well: Lightspeed Commerce (Lightspeed Commerce Stock Quote, Chart, News, Analysts, Financials TSX:LSPD) and EMERGE Commerce (EMERGE Commerce Stock Quote, Chart, News, Analysts, FinancialsTSXV:ECOM).
Starting with SHOP, many investors already know the story of the little Canadian platform that took on the world and won, but it’s the still-huge runway ahead of them that really deserves mention: Shopify’s total addressable market in the SMB category gets parsed many ways but something like $150 billion has been the estimate. That leaves a boatload of room to grow for a company that just reached the $1 billion revenue mark in its latest quarter.
“We continue to believe Shopify is in the early stages of scaling,” wrote National Bank Financial analyst Richard Tse in his July 28 review of Shopify’s second quarter 2021 results. “In our view, Shopify remains a leading disruptor and we believe upside in the stock will come from organic growth via incremental growth drivers like International, new Merchant Services like SFN, Shopify Plus (larger enterprises), Shop, Shop Pay, expanding channel partnerships (like Facebook and Google) and now POS Pro for brick-and-mortar retail.”
Tse said the re-opening of bricks and mortar retail in these later days of the COVID-19 pandemic will be a tempering factor in SHOP’s overall growth but the analyst nonetheless sees the move to online commerce as signalling a broader acceptance of e-commerce as now a permanent dimension to the sector.
“We’ve increasingly been of the view that despite reopenings, we expect some permanency in the market shifts for commerce (online and offline) towards broader omnichannel platforms. Shopify saw this in its own data where GMV in its UK segment grew faster than Shopify’s aggregate GMV and above pre-COVID levels, suggesting that online and in-store commerce are becoming less mutually exclusive,” Tse wrote.
With his update, Tse reiterated an “Outperform” rating for SHOP with a maintained US$2,000.00 target for a projected one-year return of 29.7 per cent at the time of publication.
And for investors looking for hot stocks, Montreal-based Lightspeed has also been a smashing success in its brief tenure as a public company. Since debuting in March 2019, LSPD has returned over 530 per cent.
Those gains reflect the company’s continued expansion both organically and through major M&A action over the past year, where Lightspeed has made inroads into the US market through a number of acquisitions.
Lightspeed, which has a cloud-based point-of-sale POS platform geared at retailers and restaurants that covers features such as inventory, loyalty, sales and analytics, is, like Shopify, in the early days of its development and growing fast. Over its most recent reported quarter, LSPD showed revenue growth of 220 per cent year-over-year, while the business continues to edge towards profitability with a reported US$6.0 million loss in its fiscal first quarter 2022 results delivered earlier this month.
Tse and National Bank also cover Lightspeed, with the analyst having raised his target after the company’s latest quarter, saying management’s guidance for upcoming quarters was better than expected.
“While Lightspeed has grown into a much bigger Company since its IPO in 2019, we still see this name at a very early stage in its growth trajectory, particularly given the potential upside from Payments (currently only ten per cent of GTV processed) as well as incremental growth drivers like the Company’s Supplier Network, Lightspeed Capital and recent technology partnerships with Google and OpenTable,” Tse wrote in an August 5 report. Bottom line, as outlined in our preview, the Company’s ability to (strategically and tactically) execute over the past 18 months gives us increasing confidence in a reopening market.
With the update, Tse reiterated his “Outperform” rating while raising his target from US$110.00 to US$120.00 for a projected one-year return of 27.0 per cent.
Finally, EMERGE Commerce deserves mention as an up-and-coming player in the direct-to-consumer e-commerce sector, where the company has acquired brands such as premium meat subscription business trulocal.ca, a number of golf-related assets including JustGolfStuff.ca and travel experiences companies WagJag.com and BeRightBack.ca.
According to Raymond James analyst Steven Li, EMERGE’s pipeline for further M&A deals is huge, with potential targets currently combining for about $68 million in EBITDA.
The re-opening of economies will also benefit EMERGE over the second half of 2021, according to Li, with golf courses opening and online consumer spending reaching its peak in the fourth quarter.
“The biggest quarter for ECOM’s portfolio of brands is in 4Q. Holiday events (Black Friday, Cyber Monday etc.) greatly benefit the WagJag shopping site, golf products, holiday packages, etc. As consumers shift their spending online at an accelerated rate, we expect ECOM stands to benefit from the current e-commerce surge and the resulting strong organic growth profile of the businesses they acquire,” Li said in a May 27 update to clients.
At the time of his report, Li maintained an “Outperform 2” rating with a 12-month price target of $2.75 per share for EMERGE Commerce, which at the time of publication represented a projected return of 143 per cent.
Disclosure: EMERGE Commerce is an annual sponsor of Cantech Letter.