Look past the noise on Lightspeed Commerce, 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 $120.00/share with an estimated return of 76.1 per cent in his update to clients on November 4.

Founded in 2005 in Montreal, Lightspeed POS 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.

Tse’s analysis comes after Lightspeed released results for its second financial quarter of 2022, which Tse noted to be solid and better than expected relative to expectations in spite of what he notes to be a vocal group casting doubts about the company.

“The reality is that we’ve seen similar situations before over our many years covering the sector and know all too well these situations can leave an overhang, even in the face of strong results.” Tse said. “Yet, with Lightspeed’s results and outlook reinforcing our investment thesis, we think investors who can look through the short overhang have the potential to benefit meaningfully looking ahead.”

In noting the company’s formidable quarter, Tse made a point to reference the company’s organic growth, with Lightspeed’s subscription and transaction-based revenue experiencing a 58 per cent increase in the quarter to contribute to the overall revenue of $133.2 million, a 193 per cent year-over-year increase to beat the $124.2 million projection set out by National Bank and the $124.5 million consensus estimate. (All figures are in US dollars.)

For the first time, the company’s transaction-based revenue ($65 million, 320 per cent year-over-year increase) actually eclipsed the subscription-based revenue ($59.4 million, 132 per cent year-over-year increase) in a quarter, with Tse attributing the revenue mix shift to the potential of Lightspeed’s Payments initiative as a scalable platform.

Meanwhile, the company reported an adjusted EBITDA loss of $8.7 million in the quarter, beating the consensus estimate of a $11.5 million loss and the National Bank projection of a $12.4 million loss, with Tse noting operating leverage gains across all expenses.

“Lightspeed’s powerful commerce platform has helped our customers to not only survive the worst of the pandemic but thrive in the recovery.” said Dax Dasilva, Founder and CEO of Lightspeed in the company’s November 4 press release. “With the addition of Ecwid and NuORDER, Lightspeed will continue to deploy revolutionary technology that will allow our customers to meet the future with greater insights, control and confidence than they have ever had in the past.”

In his investment thesis, Tse made further note of the early success of Lightspeed’s Payments platform, with 11 per cent of the company’s gross transaction value coming through Payments in the quarter, up significantly from the five per cent reported in the same quarter of 2020 and 10 per cent in the last quarter. In particular, Tse notes Payments’ significant growth despite only being available to merchants in Canada and the United States, and it could serve as an indicator for the success of any future services it rolls out, including Capital, Lightspeed Retail, and Lightspeed Restaurant.

Tse also notes that Lightspeed added a number of new clients in the quarter, including The Australian Football League and The Original Pancake House.

The updated results have prompted Tse to revise some of his immediate and long-term financial projections, as he now projects revenue for the third quarter of the 2022 fiscal year to be $143.6 million instead of $140.3 million. He also forecasts overall revenue for 2022 to now reach $534.9 million instead of the previously estimated $530 million, with his 2023 projection slightly increased to $714.9 million from $713 million.

Meanwhile, despite the beat in this quarter, Tse has slightly downgraded his EBITDA projections moving forward, forecasting a $10.9 million loss for the upcoming quarter compared to the initial $9.4 million loss projection, which contributes to a lowered 2022 projection of a $41.2 million loss compared to Tse’s initial analysis of a $35.3 million loss.

2023 produces a more dramatic shift, as Tse’s projection drops to a $12.1 million loss from the previously forecasted $8.7 million loss.

On his EV/Sales multiple, Tse forecasts a drop from 39x in 2021 to a projected 15.4x in 2022, with a further projection of 11.5x in 2023.

“We reiterate our Outperform rating on LSPD with a target price of US$120 based on our multi-stage DCF that captures the company’s longer-term outlook with growth from both new merchants and increasing ARPU care of products like Payments and eCommerce,” he said.

Overall, Lightspeed’s stock price has risen by 7.8 per cent on the New York Stock Exchange for the year to date, though it has fallen off significantly since hitting a high point of US$124.03/share on September 9.