Long-term outlook still great for Lightspeed, says National Bank

National Bank of Canada analyst Richard Tse has plenty to say about Lightspeed Commerce (Lightspeed Commerce Stock Quote, Chart, News, Analysts, Financials TSX:LSPD), reiterating his “Outperform” rating and target price of $120/share with an estimated return of 125.1 per cent in his update to clients on Tuesday. (All figures in US dollars.)

Founded in 2005 in Montreal, Lightspeed Commerce offers a cloud-based point of sale system for business, with its solutions allowing users to manage inventory, loyalty, sales, analytics and other related processes.

The stock has been under a lot of pressure of late, dropping from a high of $124 in September to now $55 and change after both a short report and a recent quarterly release that featured widening losses. Tse’s updated analysis comes after National Bank hosted an Investor Day event.

“While the event provided a chance to revisit Lightspeed’s strategy, business model and outlook, much of what we heard continued to be consistent with our investment thesis and why we rate the name Outperform,” Tse said. “Yet, given the absence of any imminent catalysts discussed at this event, we expect a continuing overhang in the stock care of a short report released late September.”

Tse had numerous significant takeaways from Lightspeed’s Investor Day proceedings, with a particular emphasis on the company’s efforts to address lingering questions from investors and analysts from the company’s recent quarterly results.

In referencing a seasonality slide, Lightspeed pointed to conservatism around an uncertain supply chain backdrop and the potential impact on its merchants. Meanwhile, in addressing the small increase from ten per cent to 11 per cent in regards to the penetration of its Payments app, Lightspeed attributed it to the app being available in different markets at different times, though the company was also able to demonstrate scalability and its penetration in Europe, where Lightspeed has secured more than 800 customer locations.

Finally, the company noted a decrease to 150,000 net customer locations from 156,000 came on account of merchants in Australia and New Zealand, both of which had extended lockdown periods in the quarter.

“We think Lightspeed offered some very reasonable explanations for the quarterly fallout and while it’s unlikely to do anything to offer relief as noted above in the short term, we think the continued execution under a normalized market through calendar 2022 will prove out for longer-term investors,” Tse said.

Looking through a longer lens, Tse pointed to potential opportunities within its supplier network, where Lightspeed is working to connect merchants with their suppliers to reduce friction while providing insight through predictive analytics; merchant services, where Lightspeed is working on new features to enable on-demand inventory management directly embedded within the platform and financial solutions; and consumer services, where the company is planning to have its platform enable customized shopping experiences, with the aim of allowing more consumers to buy local instead of from big brands and marketplaces.

Finally, Tse noted the company also addressed its numerous recent acquisitions, with management explaining their tactical nature to expand its geography, verticals and solutions. In particular, Lightspeed’s Restaurant and Retail platforms have already incorporated elements of the acquired companies; Restaurant includes components from Kounta (ingredients management), iKentoo (user interface), Upserve (advanced analytics) and Gastrofix (embedded conformity to European fiscal laws), while Retail features elements from Ecwid (omnichannel eCommerce offering), NuOrder (automatic ordering and analytics), ShopKeep (sales and reporting) and Vend (retail management software).

“While we don’t know how those new flagship releases will resonate, if we were to add the benefit of those incremental capabilities to their former versions, we think it’s reasonable to think they would be incrementally positive to driving growth,” Tse said.

Tse left his financial projections unchanged with an expectation for Lightspeed to surge upward, projecting $534.9 million in revenue for 2022 for a potential year-over-year increase of 153 per cent on the $211.5 million reported in 2020, with a further projected jump to $715 million in play for 2023, marking a potential year-over-year increase of 33.7 per cent.

Meanwhile, Tse continues to project losses in adjusted EBITDA for Lightspeed in his forecast window, forecasting losses of $41.2 million in 2022 and $12.1 million in 2023.

For EV/Sales, Tse forecasts the multiple to drop from the reported 28.4x in fiscal 2021 to a projected 11.2x in 2022, with a further projection of 8.4x in 2023.

Though Tse expects a continuing overhang on the stock without immediate catalysts, he believes the company will continue to execute over the long term.

“In the short term, we believe the stock will be subject to continued pressure given the absence of catalysts,” Tse said. “But for those with a longer time horizon, we believe the current stock price represents an opportunity.”

Overall, Lightspeed’s stock price has dropped by 17 per cent on the New York Stock Exchange for the year to date, experiencing a 57.1 per cent decrease in its value since reaching a high point of $124.41/share on September 22, bottoming out at $53.31/share on Tuesday.