Lightspeed keeps “Outperform” rating at ATB

Following news about layoffs at Lightspeed Commerce (Lightspeed Commerce Stock Quote, Chart, News, Analysts, Financials TSX:LSPD) ATB Capital analyst Martin Toner has maintained his bullish stance on the stock.

On April 3, LSPD announced it would cut 280 jobs, or about 10% of its overall headcount. The company concurrently announced a share buyback.

“After successfully integrating our many acquisitions into our two flagship products and expanding adoption of our payments offering, Lightspeed is now entering a new phase, one focused on profitable growth to capture the opportunity in front of us,” CEO Dax Dasilva said. “This means making some hard decisions, like reducing spending in specific areas such as headcount, to allow for investments in others. As we navigate through this transition, we acknowledge the invaluable efforts of every team member who has played a role in our journey.”

Toner summarized the development.

“The Company stated that the restructuring was done to improve LSPD’s financial performance and allow for greater investment in “key product development and customer experiences”. Along with the restructuring, the Company announced a share repurchase program to allow LSPD to repurchase up to 10% of its public float, representing ~$140mm based on “recent closing prices on the NYSE”. LSPD reaffirmed its previously established revenue and adjusted EBITDA guidance given during its Q3 earnings call. During its Q3/FY24 earnings call in February, the Company’s shares fell 24% following concerns over plans to invest in outbound sales motions and cost control. Shortly thereafter, LSPD re-installed founder Dax Dasilva shortly thereafter as interim CEO. We expect the Company to continue to invest in growth, including some of the savings from the restructuring. We assume roughly half of the cost savings are reinvested into the business. We decrease our EBITDA estimates to reflect lower expectations for margin improvement, offset by the positive impact of the restructuring announcement. The changes do not change our target price. ”

In a research update to clients April 4, Toner maintained his “Outperform” rating and price target of $30.00 on LSPD, implying a return of 50.8 per cent at the time of publication.

The analyst thinks Lightspeed will post an Adjusted EBITDA loss of $2.9-million on revenue of $897.4-million in fiscal 2024. He expects those numbers to improve to Adjusted EBITDA of $26.6-million on a topline of $1.09-billion the following year.

“Our C$30.00 Price Target indicates a return to target of 50.8%. Our price target is based on our discounted cash flow (DCF) model, using a weighted average cost of capital (WACC) of 14.2%, a terminal growth rate of 3.25%, and an exchange rate of C$1.36/US$. Our DCF model implies a terminal EV/Sales multiple of 1.4x in FY2032, and our discounted terminal value of $1.9bn represents 63.3% of our total estimated EV of $2.9bn.”