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Lightspeed Commerce has a huge upside, says National Bank

Solid quarterly numbers have National Bank Financial analyst Richard Tse holding the line on Canadian tech company Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NYSE:LSPD), despite the severe pullback in the stock. Tse delivered a research update on Thursday where he reiterated his “Outperform” rating for LSPD and $65.00 target, representing at the time of publication a projected one-year return of 186.6 per cent.

Montreal’s Lightspeed Commerce reported fourth quarter fiscal 2022 earnings on Thursday for the period ended March 31, 2022. The quarter featured revenue up 78 per cent year-over-year to $146.6 million, with Subscription revenue up 77 per cent and hitting $70.5 million and Transaction-based revenue up 88 per cent to $66.7 million. The company’s net loss for the quarter was $114.5 million or $0.77 per share compared to a net loss of $42.0 million or $0.34 per share a year earlier. Adjusted EBITDA was figured at a loss of $19.7 million compared to a loss of $9.6 million a year earlier. (All figures in US dollars.)

The fiscal year was an eventful one for the payments and e-commerce company which had made a number of major acquisitions, seen through a short-seller attack and now had its share price shredded since this past September. Then, the stock hit a high of $158 but has plunged to now $28 as of midday trading on Thursday. 

In its quarterly commentary, management highlighted the launches this year of its two flagship offerings in Lightspeed Retail and Lightspeed Restaurant, saying the platforms equip SMB’s worldwide with the tools to meet the growing (and returning) demand for shopping and dining.

“Consumers are once again dining out and shopping in person, filling up restaurants and stores in cities and neighbourhoods all around the world,” said CEO JP Chauvet in a press release. “With the fear of further lockdowns currently abating, merchants and restaurateurs are operating in a more favorable environment where they can create new concepts, invest in technology and open new locations. This is an environment where Lightspeed will truly shine.”

Looking at the quarter, Tse called it a strong performance driven by organic growth (48 per cent year-over-year in subscription and transaction-based revenue), while the EBITDA loss of $19.7 million was better than expected. The National Bank call on Q4 revenue was $140.3 million (consensus was $140.8 million) compared to LSPD’s realized $146.6 million, while the $19.7 million EBITDA loss was less than Tse’s estimated loss of $23.3 million and the Street’s call for a loss of $20.4 million.

Tse said key takeaways from the quarter start with Lightspeed’s Payments, which the analyst said is still just scratching the surface. Lightspeed processed $2.2 billion in Payments volume, up 132 per cent year-over-year. Tse noted that Payments processed as a percentage of Total Gross Transaction Volume in the quarter was 12.0 per cent, up from 10.8 per cent in the fiscal Q3 and up from 8.8 per cent for Q4 fiscal 2021.

“Moving forward, we see scaling adoption of payments in Europe as well given a global roll-out. That global roll-out should also be accelerated by Lightspeed’s new (flagship) Restaurant and Retail offerings which integrate analytics based on payments,” Tse wrote. 

“The reality is that Lightspeed is still in the early days when it comes to Payments particularly given a natural target of 50 per cent attach rates using comparable names. Payments was a big part of our growth thesis since initiating coverage and the results are actually coming in better than those initial expectations as Lightspeed overlays Payments onto organic and acquired merchant growth. Bottom line, there’s a lot of runway,” he said.

Secondly, Tse said all the company’s key performance indicators were heading in the right direction, with subscription and transaction-based revenue of $137.3 million up 82 per cent year-over-year, customer locations ending the fiscal year at 323,000 locations, up 205 per cent from the previous year (and including 160,000 merchants added with the acquisition of Ecwid. Also, monthly ARPU (excluding Ecwid) increased in the quarter by 26 per cent year-over-year to $270 from $215 per location, with more customers adding modules.

“Management believes a fully penetrated ARPU (ex-Ecwid) could be 3-4x higher as it rolls out new offerings such as its Supplier Network,” Tse said.

Finally, Tse pointed to management’s fiscal 2023 guidance and its delineated path to profitability, which came in above his and the consensus expectation: the company called for full 2023 revenue and adjusted EBITDA of between $740 and $760 million and between negative $35 and negative $40 million, respectively. On profit, management said it expects fiscal 2024to be its first profitable fiscal year.

Tse said, “In our view, while that expectation is likely further out than the market was hoping for (expectation ~ EBITDA positive exiting F23) a formal timeline provides an important tangible goalpost under the current market backdrop for tech stocks. More importantly, with just under $1 billion in cash, Lightspeed has more than enough to take it to profitability under the current burn rate.”

“We reiterate our Outperform rating on LSPD with a target price of US$65 (unchanged) based on our multi- stage DCF that captures the Company’s longer-term outlook with outsized growth from both merchant additions and increasing ARPU care of products like Payments and eCommerce. Our target implies a valuation on EV/Sales of 8.7x on F24E (C23) (was 9.3x),” Tse wrote.

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