Shares of Montreal-based payments company Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NYSE:LSPD) have been decimated over the past 12 months, with the stock having lost over 80 per cent of its value since last September.
But with a robust growth profile, a potential for be EBITDA positive in a year’s time and a set of deep pockets likely to keep the company busy with acquisitions, now’s a good time to be buying Lightspeed, according to iA Capital Markets analyst Neehal Upadhyaya, who initiated coverage on Thursday with a “Buy” rating and $29.00 target price, which at the time of publication represented a projected one-year return of 55.7 per cent.
Cloud-based e-commerce platform Lightspeed offers tools for clients to engage customers, manage their operations, accept payments and grow their business, with Lightspeed’s client base being within the restaurant and retail spaces. The company posted $221.7 million in revenue for its fiscal 2021 (year-end March 31) and $548.4 million in fiscal 2022, with the jumps in revenue coming from increases in adoption of its payments service, merchant growth along with acquisitions.
For its most recently reported quarter, the company’s Q1 fiscal 2023, reported in early August, revenue was up 50 per cent year-over-year to $173.9 million, while the quarterly adjusted EBITDA loss was $15.6 million compared to a loss of $16.0 million a year earlier. (All figures in US dollars.)
In its quarterly comments, management said macro conditions have become more concerning in recent months, the company should be able to keep growing its number of customer locations and expanding its gross transaction volume (GTV), while the return of in-person shopping and dining should also benefit Lightspeed.
“Our two flagship offerings, Lightspeed Retail and Lightspeed Restaurant, continued to see excellent market reception this quarter, which helped drive strong revenue growth.” said JP Chauvet, CEO, in a press release.
“Consumers are once again shopping in-store and dining out, and our customers are turning to Lightspeed to help them deliver compelling omni-channel experiences under one comprehensive commerce platform, helping them grow revenue, reduce complexity and lower operating costs,” he said.
Upadhyaya concurred with that sentiment on the macro conditions, saying disposable income is likely to drop due to rising interest rates and inflationary pressures, but he’s still forecasting topline growth for both fiscal 2023 and 2024 for LSPD, saying increased payments adoption rates will help the company’s top and bottom lines while also asserting that Lightspeed has plenty of growth levers to pull in the near future, including a B2B payments solution and the integration of the NuORDER, the digital brand management and global distribution network Lightspeed acquired last year.
“Payment adoption will singlehandedly be the most important factor in determining LSPD’s growth and profitability over the next few years. We posit that with a sufficient increase in payment adoption, Lightspeed will be able to withstand a recessionary environment better than most SaaS companies,” Upadhyaya wrote.
The analyst called NuORDER a “sleeping giant” for Lightspeed. Last fall, Lightspeed’s share price dipped after the company announced the $425 million (half cash, half shares) acquisition of NuORDER, with Upadhyaya summing up the sentiment as being concerned about LSPD buying a B2B business to link up with its B2C platform.
Upadhyaya argued the two companies fit together well, as NuORDER provides all the benefit of Lightspeed’s previous Supplier Network while also having its own set of advantages, such as it accelerates the timeline of building a full-scale supplier network that can support all of Lightspeed’s retailers, it provides access to luxury brands, it has increased the stickiness and reduced the churn of LSPD’s B2C merchants and the increased product offering should also lead to higher GTV, ARPU and revenue.
“We expect LSPD to explore and potentially develop other solutions and products for its merchants through NuORDER, such as trade financing and implementing Faire’s business model of introducing new products to its current B2C customers for a commission that could add material top-line revenue, north of $36 million,” Upadhyaya wrote.
“With the growth levers we expect LSPD to pull, we believe that NuORDER’s standalone valuation could be worth more than $2 billion within a few years, using conservative estimates,” he said.
By the numbers, Upadhyaya is calling for Lightspeed to generate fiscal 2023 revenue and adjusted EBITDA of $753 million and negative $39.2 million, respectively, and 2024 revenue and EBITDA of $979 million and positive $2.1 million, respectively.
On valuation, the analyst estimated LSPD to be trading at a significant discount to its peer group. He has Lightspeed at 2.1x his 2023 EV/Revenue estimate, which is below its e-commerce and payment comparables at 4.3x and its Canadian SaaS comps at 5.7x. Upadhyaya’s $29.00 target is based on a 4.0x multiple of his 2023 Revenue estimate.
“Due to the superior growth profile of the business, the incredible payments opportunity, and M&A upside we believe the risk/reward profile is compelling at these levels,” Upadhyaya said.