Lightspeed is heading back to $27, says iA Capital

It’s a good time to be buying Canadian payments and e-commerce company Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NYSE:LSPD), according to iA Capital Markets analyst Neehal Upadhyaya, who delivered an update to clients on the company on Wednesday, saying Lightspeed has a number of growth levers at its disposal.

Montreal-based Lightspeed held its capital markets day on Tuesday, where the company focused on its journey so far, touted its revamped commerce platform and, importantly, its goal going forward of attracting the right customer, namely, larger clients with higher gross transaction volumes.

Upadhyaya said Lightspeed management expressed how 46 per cent of its customer base represents just five per cent of GMV, or the total dollar value of transactions processed through LSPD’s platforms. Lightspeed has come around to the belief that its tech stack is best geared toward the more complex workflows (multiple store locations, many employees) associated with larger clients.

Upadhyaya said this shift is aimed at increasing Lightspeed’s average revenue per user substantially.

“Considering the backdrop of troubling macroeconomic conditions the world over, this shift in focus will help protect the downside of subscription revenues due to less churn, while allowing LSPD to win big for every high GTV customer it onboards to its payments solution,” Upadhyaya wrote.

The analyst compared the Lightspeed story to that of Shopify, where the emphasis has always been on ‘democratizing commerce’ and giving small merchants the tools to succeed while also servicing the larger clients.

Upadhyaya said Lightspeed is taking a different path, doubling down on being able to present to large clients a comprehensive platform from payments to analytics to customer insights.

“Due to these advantages in the POS offering, LSPD is no longer trying to be everything to everyone, unlike SHOP, and focusing on customer’s who want increased insights and need a feature-rich POS,” he said.

“While a lot of integration work remains on cleaning up and rightsizing past acquisitions, management indicated that by the end of the year, almost all of the new customers being onboarded will be through its two flagship platforms. This will help reduce OpEx costs needed to service multiple legacy platforms and coupled with lower overall S&M and G&A spend as a percentage of revenue, LSPD believes it is well on its way of achieving its profitability goals,” Upadhyaya said.

With the update, Upadhyaya reiterated a “Buy” rating on LSPD and US$27.00 target price target, which at the time of publication represented a projected one-year return of 55.8 per cent.

“We continue to believe that LSPD’s current valuation provides a robust entry point into the story, especially considering thenumerous growth levers it has under its disposal that do not require large capital outlays,” Upadhyaya said.