Shopify vs. Lightspeed? Neither, this investor says

They’re two of our tech darlings here in Canada, both with a lot of runway ahead and the high multiples to match. Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials TSX:SHOP) and Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD) have handsomely rewarded investors in recent years, and with e-commerce continuing to grow, the sky’s the limit for both of them. 

That’s not enough, says Barry Schwartz, chief investment officer for Baskin Wealth Management, who cautions investors against jumping into either stock at these levels.

“I wish [someone] would have told us to buy both Lightspeed and Shopify a few years ago and now you’re asking me to compare them when they’ve already gone to the moon. And so the question is can they go to the moon and to Mars and anything’s possible. It’s just that the valuations are out of sight,” said Schwartz, speaking on BNN Bloomberg on Friday.

The more well known of the two, Shopify has been the Canadian FOMO stock par excellence for a while now, as the market can’t seem to get enough of the stock and company, generating rallies on a regular basis and driving the five-year return on SHOP to — wait for it — a gaudy 3,167 per cent.

Lightspeed’s tenure has been almost as impressive over its shorter time span, dating back to its IPO in March of 2019 where the stock debuted at C$16 per share. After having recently reached as high as C$158, LSPD has pulled back to around C$118 and change for a total return of 700 per cent.

But Schwartz says the potential downside for both stocks is huge, where a minor hiccup along the way for either company could prove disastrous. Schwartz pointed to social media platform Snap (Shap Stock Quote, Charts, News, Analysts, Financials NYSE:SNAP) which took a beating to end the week after delivering what the market took to be a disappointing quarter.

“We saw what happened today with Snapchat. This is a company that was trading at 30x price to sales, and they had a [quarterly] report where they didn’t miss that badly and the stock is down 25 per cent,” Schwartz said. “You see it with Beyond Meat, for example. It missed and was trading at an insane multiple on prices to sales and got creamed.”

“So, this scares me to buy high-multiple stocks at this juncture, after the run we’ve had over the last few years and after everybody knows interest rates are going to go up.”

“I’m not commenting about the companies. I think [Shopify and Lightspeed] are fantastic businesses, but I am scared out of my mind paying these kind of multiples at these times,” he said.

Ahead of Shopify’s third quarter earnings due on October 28, the company showed continued strong year-over-year growth in its second quarter where SHOP passed the $1 billion mark in sales for the first time. Overall revenue was up 57 per cent at $1.1 billion compared to $714.3 million a year earlier, while earnings were $284.6 million on an adjusted basis or $2.24 per share compared to $129.4 million or $1.05 per share a year earlier. (All figures in US dollars except where noted otherwise.)

Lightspeed, which reports its fiscal second quarter 2022 on November 4, also continues to impress, showing in its first quarter report delivered in August revenue up 220 per cent year-over-year to $115.9 million with a net loss of $49.3 million compared to a loss of $20.1 million a year ago. 

Lightspeed’s topline growth has been aided by big M&A deals over the past 12 months, as the company has bulked up its suite of digital commerce and business management products. Earlier this month, Lightspeed closed on the acquisition of global e-commerce platform Ecwid for a total consideration of $500 million, while in July it bought digital supply management business NuORDER for $425 million.

Both Shopify and Lightspeed say the post-pandemic view for e-commerce in general is promising and that their respective platforms will continue to reap the benefits of that growth.

“We’re seeing retail sales growing as stores reopen. The US reported that there’s about a 60 basis point rise in retail spending from June versus May, an 18 per cent jump in sales compared to June 2020,” said Harley Finkelstein, Shopify’s President, speaking on CNBC on July 28. “So, the future of commerce I think is bright. Consumers really do want to buy from independent brands and those brands are on Shopify.”

“I think as businesses are rebounding … it’s a really exciting time for independent brands and merchants and I don’t think that the future retail is going to be online or offline, it’s going to be omni-channel. [I’ve said] that talking about omni-channel is going to be like talking about colour TV. In a couple years from now, every business will be omni-channel by default,” he said.