Lightspeed Commerce is going nowhere fast, this portfolio manager says

It’s been months since the bottom fell out of Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD) and while March has seen the stock pick up some lost ground, the pullback has not been pretty and it remains an unknown whether (or if) Lightspeed will get off the mat and start punching again.

Don’t count on it, at least over the near future, says Brian Madden of First Avenue Investment Counsel, who advises investors to steer clear of this train wreck. 

“The stock is in the penalty box and we think it stays there,” says Madden, chief investment officer at First Avenue, who spoke on a BNN Bloomberg segment on Tuesday.

“It got up to manic, euphoric levels late last year and started to crack along with the general market and the tech sector in particular in the fall [of 2021]. There were some allegations from some short sellers about aggressive accounting,” he said.

Last September, US short-selling investment company Spruce Point Management came out with a report critical of Lightspeed, the Montreal-based payments processing and e-commerce company, accusing it of inflating both customer numbers and its revenue-generating prospects. Spruce Point also doubted the company’s ability to compete against larger players in the e-commerce space such as Shopify and Amazon.

“We believe [Lightspeed] has not been transparent about competitive pressures and material margin decline,” the Spruce Point report said.

The impact on LSPD was immediate, with the stock losing about ten per cent of its value over ensuing trading days. But that was just the beginning. Lightspeed then delivered a poorly received quarterly report in November that further sunk the stock, which by then had gone from a high of $158 to $80 by mid-November and then, amazingly, to as low as $25.45 by mid-March of this year — that’s an 84 per cent cratering of a stock and company which many pegged as being the next Shopify, one which had grown by leaps and bounds in recent years and recently made a big push to enter the US market through a string of high-profile acquisitions.

And while there may well be a resurrection at some point in the future, for Madden, Lightspeed remains a no-go zone.

“Bottom line, the chart doesn’t look and the valuation aside, the expectations are high and the risk is high — and this is not a risk-on market, so we’d stand aside and look for better ideas,” Madden said.

“It’s not usually a good idea trying to pick off fallen angels. In the tech world things can fall a lot further than you think they can in many instances,” he said.

Lightspeed made a switch at the top earlier this year, with founder and former CEO Dax Dasilva stepping aside for long-time Lightspeed exec JP Chauvet to move from President to Chief Executive Officer. Dasilva is staying with the company as Executive Board Chair. Lightspeed said the move came as part of a long-term succession plan.

Chauvet has said that while Lightspeed’s acquisitions have made the headlines it’s the company’s organic growth that remains the company’s focal point.

“[We had] 74 per cent revenue growth last quarter, that’s the organic piece. If you look at it non-organically with the acquisitions, it’s 156 per cent,” Chauvet said in conversation with the Financial Post in February. “But again, we’re not doing these acquisitions because we think that’s going to offset. Our company has always been a high-growth company and these acquisitions have always been made to have a very strong product strategy.”

“When you want to build you always have this question around [whether to] build internally or buy or partner, and we made these acquisitions because we wanted to accelerate our growth and we wanted to accelerate our capabilities in terms of what we brought to our customers,” Chauvet said.

Last month, Lightspeed delivered its third quarter fiscal 2022 financials which showed revenue up 165 per cent year-over-year to $152.7 million and subscription revenue up 123 per cent to $68.6 million. But the company’s losses grew as well, with negative net income of $65.5 million versus negative $42.7 million a year earlier. On an adjusted basis, LSPD’s EBITDA was negative $7.1 million versus $6.6 million a year earlier. On average, analysts had been calling for $143.1 million in revenue and negative $10.9 million in adjusted EBITDA.

Lightspeed recently made a few more changes at the top, promoting Brandon Nussey to Chief Operating Officer and Asha Bakshani to CFO while hiring Rani Hammond as its Chief People Officer, with all three taking up their positions starting April 18.

“In recent years Lightspeed has grown dramatically, adding thousands of new employees around the world, new capabilities and strong revenue growth. Our executive leadership team also needs to evolve to support the company we are becoming,” said Chauvet in a March 24 press release.

“Brandon, Asha and Rani are passionate, world class leaders. With their proven leadership I am confident that Lightspeed is well set to capitalize on the opportunities before us as we chart our path to profitability and to delivering continued innovation and value to our customers, employees, and shareholders,” Chauvet said.