As always, the market has overreacted. GLTA
Seeing a “more challenged” outlook for fiscal 2025 and believing its commitment to invest in sales and marketing initiatives brings added risk, National Bank Financial analyst Richard Tse downgraded Lightspeed Commerce Inc. to “sector perform” from “outperform” previously.
“Lightspeed reported FQ3 results that were essentially in line with Consensus but short of our expectations,” he said. “In our opinion, the results show Lightspeed executing on its Payments focus this fiscal year. The issue, and why the stock is down [on Thursday] is with respect to broad incremental comments around the F25 outlook which to us, sounded cautious. Management pointed to (new, and in our view, unexpected) investment into sales and marketing to accelerate merchant (location) additions. Because of that investment, we think margins will compress in H1/F25 while adding uncertainty for its eventual conversion into location growth. Overall, we think that’s creating an overhang. Additionally, the increasing likelihood of new acquisitions also increases the risk profile.”
On Thursday, shares of Montreal commerce software vendor plummeted 24.4 per cent with the premarket release of its third-quarter 2024 financial results. Revenue of US$239.7-million and adjusted EBITDA of US$3.6-million were above the Street’s estimates (US$235.7-million and US$2.4-million, respectively) but below Mr. Tse’s projections (US$246.2-million and US$5.5-million).
While the results missed his forecast, Mr. Tse said they were still “positive,” pointing to a 26-per-cent year-over-year gain in subscription and transaction-based revenue stemming from growting payments penetration.
“Importantly, FQ3 marked the second consecutive quarter of positive Adj. EBITDA of $3.6-million with the Company reiterating breakeven or better Adjusted EBITDA in FY24 (Mar),” he said.
“Underneath the results, the 1.7-per-cent quarter-over-quarter decline in GTV was surprising in what was viewed as a strong seasonal quarter for the broad market. And while the Company attributed part of the moderation to normalized volumes in certain markets, we would have thought the scale of the remaining segments would be large enough to offset those normalizing segments.”
However, he thinks investments will likely weigh on both margins and growth moving forward, particularly in the first half of the year with “added uncertainty” for the second half.
“Our revised estimates reflect that new information from [Thursday’s] conference call – altogether, that new (and incremental) risk profile and its impact on our estimates has us downgrading the name,” said Mr. Tse.
He dropped his target for Lightspeed shares to US$20 from US$25. The average target on the Street is US$19.69, according to Refinitiv data.
Elsewhere, TD Securities’ Daniel Chan cut the stock to “hold” from “buy” and droppe dhis target to US$17.50 from US$25.
Other analysts making changes include:
* Scotia’s Kevin Krishnaratne US$20 from US$22 with a “sector outperform” rating.
“Was the 25-per-cent sell off in the stock [Thursday] warranted? We don’t think so,” he said. “Our target moves 10 per cent lower to US$20 (still valued at 4.5 times CY25 GP), but we acknowledge how expectations of better trends in the back half of FY25 as outbound sales investments kick in and software growth rebounds may have the stock trading rangebound near term. Q4 (March) is the seasonally weakest and sees a quarter-over-quarter step down in all key metrics, and the macro so far has shown no signs of improvement in GTV across both the hospitality and retail verticals. We view the valuation as compelling (2.9 times CY25 GP vs. Fintech/POS peers 7.9 times) and note several positives in the quarter which featured 7-per-cent year-over-year growth in the locations that matter most, est. double-digit software ARPU gains, and GPV/GTV on track (29 per cent) with no signs of unexpected churn, giving us confidence in LSPD’s product and opportunity.”
* ATB Capital Markets’ Martin Toner to $30 from $35 with an “outperform” rating.
“We expect a number of drivers to consistently contribute to robust revenue growth, including adding more merchants, ARPU growth, and growth in payments revenue, from an increasing penetration of Lightspeed Payments,” said Mr. Toner. “LightSpeed’s customer base are in the retail and hospitality industries, both of which are volatile. We use a beta of 1.5 to account for this inherent risk. The Company appears to be moving past the volatility and uncertainty that has come with COVID-19. New merchants and GTV growth have improved in North America and Western Europe, where vaccination rates are high, and COVID-19 cases have subsided. Lightspeed’s growth is driven by location growth, GTV per location growth, ARPU growth and an increase in payments penetration. We believe Lightspeed has a durable growing strategy and will be highly profitable over time with additional scale.”
* Barclays’ Raimo Lenschow to US$20 from US$23 with an “overweight” rating.
“LSPD’s Q3 results saw nice improvement on the payments strategy and further room for upside, given the still only 29-per-cent penetration,” he said. “However, GTV was down quarter-over-quarter which came as a surprise, and will likely raise some near-term questions around end-market health and industry dynamics.”
* BMO’s Thanos Moschopoulos to US$19 from US$21 with an “outperform” rating.
“We remain Outperform on LSPD and have reduced our target price following Q3/24 results, which were a slight beat on revenue and EBITDA. Management (essentially) reiterated FY2024 guidance, though its commentary suggests that FY2025 opex will be considerably higher than expected. We’ve modestly trimmed our FY2025E revenue forecast while significantly reducing EBITDA. We believe better software growth will be needed in order for the stock to work, and we don’t expect this to materialize until H2/25. We’re inclined to be patient, however, given the stock’s depressed valuation and attractive risk/reward,” he sai.
* CIBC’s Todd Coupland to $25 from $27 with a “neutral” rating.
* Raymond James’ Steven Li to $35 from $43 with an “outperform” rating.
* JP Morgan’s Tien-Tsin Huang to US$17 from US$19 with a “neutral” rating.