Time to sell your Lightspeed (TSX:LSPD) stock?

Lightspeed Commerce (Lightspeed Commerce Stock Quote, Chart, News, Analysts, Financials TSX:LSPD) added fewer new customer locations in its second quarter despite better-than-expected revenue, prompting ATB Cormark Capital Markets analyst Martin Toner to maintain his “Sector Perform” rating and C$18.00 target.

On Nov. 6, Toner said the Montreal-based company’s cost reductions should improve profitability, but slower customer growth raises questions about its longer-term revenue outlook. “Given growth from new locations is an important driver to the overall growth story at LSPD, we look for more evidence that location growth is healthy before becoming more constructive,” Toner said.

Lightspeed reported fiscal second-quarter 2027 revenue of US$323.8-million, above Toner’s US$319.5-million forecast and consensus of US$321-million. Adjusted EBITDA was US$22.7-million, broadly in line with expectations.

However, the company added approximately 800 customer locations, down from 2,000 in the previous quarter.

Toner said the slowdown is concerning because new locations are an important source of future subscription and payment-processing revenue. On a positive note, newly added locations generated 27% more software revenue than a year earlier. Lightspeed’s two principal growth markets, North American retail and European hospitality, increased revenue 17% year-over-year and now account for 77% of total revenue.

Software revenue reached US$97.8-million, exceeding expectations, while transaction revenue of US$213.9-million was in line with forecasts. Gross margin was 44.1%, below Toner’s 45% estimate, reflecting a greater contribution from lower-margin payment processing.

Lightspeed maintained its fiscal 2027 guidance but introduced third-quarter revenue guidance of US$310-million to US$320-million, below consensus at the midpoint. The company also expects third-quarter Adjusted EBITDA of US$25-million to US$30-million, ahead of consensus of US$24-million, as recent workforce reductions begin reducing expenses.

Lightspeed eliminated approximately 250 positions after quarter-end, following earlier reductions in its product and technology workforce. Toner said the savings should support management’s target of US$95-million in adjusted free cash flow for fiscal 2028, although some will be reinvested in growth initiatives.

Following the results, the analyst lowered his fiscal third-quarter revenue forecast to US$315.1-million from US$320.4-million but increased his Adjusted EBITDA estimate to US$28.1-million from US$22.3-million. For fiscal 2027, Toner maintained his revenue forecast at approximately US$1.26-billion while raising his Adjusted EBITDA estimate to US$95.1-million from US$86.4-million. He reduced his fiscal 2027 net income forecast to US$6.7-million from US$14-million, reflecting lower expected gross profit. For fiscal 2028, he forecasts revenue of US$1.44-billion and Adjusted EBITDA of US$147.4-million, largely unchanged from his previous estimates.

Toner said stronger margins and free cash flow provide reasons for optimism, but he wants evidence that customer location growth is recovering before adopting a more positive view of the shares.

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