Lightspeed Commerce is now a Buy, says Eight Capital

The share price for Lightspeed Commerce (Lightspeed POS Stock Quote, Chart, News, Analysts, Financials TSX:LSPD) keeps falling, but Eight Capital analyst Adhir Kadve has now resumed coverage with a “Buy” rating. In a Tuesday report, Kadve has projected a double for the stock over the next 12 months, posting a target price of C$47/share.

“We see Lightspeed as a best-in-class POS commerce platform that has built a leadership position via M&A and serving complex SMB merchants with a focus on key verticals where the company has built critical mass,” Kadve said. “By leveraging its global footprint and diverse merchant base, Lightspeed was able to navigate the COVID-19 pandemic and an uncertain macro backdrop (like supply chain issues) to deliver strong fundamental results.”

Kadve’s resumption of coverage on Lightspeed, a Montreal-based point-of-sale and ecommerce software provider, comes ahead of the expected release of fourth quarter financial results for its 2022 fiscal year on May 19.

“We note that CQ1 is a seasonally weaker quarter for LSPD, as transaction-based revenues are likely to fall sequentially following a seasonally stronger CQ4 and location additions could see potential headwinds from the Omicron variant, early in the year,” Kadve said.

Kadve said Lightspeed is in a prime position to profit from post-COVID tailwinds, particularly pointing to the Retail Sales and Restaurants streams reaching and exceeding their pre-pandemic posture, with a ten per cent year-over-year increase from in-store retail sales in April, paired with a 1.8 per cent decrease in ecommerce retail sales in the same period as customers return to their pre-pandemic shopping habits.

“In our view, this is positive for Lightspeed, given the company’s thesis of providing retailers (and restaurateurs) with an omni-channel solution and thus allowing merchants to cater to their end-customers regardless of their shopping habits whether online or in-person,” Kadve said.

Lightspeed has built up its customer base to over 159,000 clients, with an equal distribution between North American clients and the rest of the world. The company has a target to grow customer locations by 15 per cent year-over-year, which Kadve believes to be feasible given the company’s market penetration of less than three per cent.

In addition, Lightspeed is looking to continue growing its subscription ARPU, which currently sits at $130, by a further 10 per cent, with Kadve pointing to larger customer wins with MRR growth greater than 20 per cent, as well as the potential to upsell and cross-sell existing customers.

Most recently, the company announced the launch of Lightspeed Retail, which aims to unite advanced POS, payments and e-commerce into a single solution.

“The core of Lightspeed’s vision for retailers is a seamless commerce platform that tackles the key challenges modern merchants face not only today but also five years from today,” said Lightspeed CEO JP Chauvet in a May 5 press release. “The new Lightspeed Retail is the culmination of strategically combining Lightspeed’s leading technology and talented teams with those of our acquisitions, creating the ultimate product for the modern retailer. Not only are we bringing to market the best of ecommerce, payments, and POS so busy merchants can do it all from one platform, but this launch lays the groundwork for everything that is coming next, from fully-integrated supplier solutions to even more powerful consumer and buying data for our merchants.”

Kadve is forecasting revenue of $543.7 million for 2022 for a 145 per cent year-over-year increase, followed by a 35 per cent year-over-year increase to a projected $733.8 million in 2023. Looking ahead to 2024, Kadve projects an additional 35 per cent jump, falling just short of 10 figures at a projected $990.7 million. (All figures are in US dollars except where noted otherwise.)

From a valuation perspective, Kadve forecasts the company’s EV/Sales multiple to be 3.3x in 2022, then dropping to a projected 2.4x in 2023 and 1.8x in 2024.

Kadve’s gross margin projections remain relatively flat, with forecasts of 50 per cent in both 2022 ($274.3 million) and 2023 ($367.6 million), with a slight dip to a projected 49 per cent margin ($487.2 million) in 2024.

Meanwhile, after projecting losses for 2022 ($41.8 million) and 2023 ($43.3 million), Kadve forecasts Lightspeed’s adjusted EBITDA to turn positive in 2024 at $18.5 million for a two per cent margin.

“As the world begins to normalize, we think there is a strong setup for Lightspeed and several avenues for the company to achieve its 35 to 40 per cent growth rate moving forward, with opportunities in development to exceed this,” Kadve said.

Lightspeed Commerce has languished to a 56.2 per cent loss in its share price since the start of 2022, having experienced some volatility after opening the year at C$50.25/share before dropping to its present trading of C$21.51/share, its lowest point of 2022 to date.