Ryan IrvineMind you, similar comments were made about SHOP when it was priced around $250. I know, because to my ultimate regret, I sold the last of my holdings at that level because every single analyst on the street thought it was badly overpriced. GLTA
This week, we’ve got the band back together and are looking at listener questions on no less than 4 interesting stocks. We have three YSOT segments for your listening pleasure. The first is on Lightspeed Commerce Inc. (LSPD:TSX), a point-of-sale (POS) platform solutions provider for SMEs in the retail and restaurant industries. Lightspeed provides an end-to-end solution that integrates front-end software, back-end software, and payments. A listener asks if Lightspeed could be the next Shopify. Lightspeed Commerce Inc. (LSPD:TSX)
Price: $117.88
Market Cap: $16.80 Billion
What Does Lightspeed Do?
Founded in Montral, Canada in 2005, Lightspeed is dual-listed on the New York Stock Exchange and Toronto Stock Exchange. The company is a point-of-sale (POS) platform solutions provider for SMEs in the retail and restaurant industries. Lightspeed provides an end-to-end solution that integrates front-end software, back-end software, and payments.
Recent News:
August 11th – LIGHTSPEED ANNOUNCES CLOSING OF US$716.1 MILLION PUBLIC OFFERING.
The Company currently expects that the net proceeds of the offering will be used primarily to allow it to pursue its growth strategies. Organic and acquisition driven. There was already $603.7 million in cash with limited debt, so the company is definitely cashed up.
Fiscal 2022 Q1 Results: Great Growth.
- Total revenue of $115.9 million, an increase of 220%
- Recurring subscription revenue of $49.9 million, an increase of 115%
- Transaction-based revenue of $56.5 million, an increase of 453
- Net Loss of ($49.3) million higher than the net loss of ($20.1) million in the same period last year. After adjusting for certain non-cash and non-recurring items such as acquisition-related costs and stock based compensation, Adjusted Net Loss1 was ($6.9) million, (BETTER) or ($0.05) per share1, an improvement to (6.0%) of revenue from (7.5%).
- Adjusted EBITDA loss of ($6.0) million.
Fiscal 2022 Guidance:
Revenue of $510 – $530 million. (excellent growth from last year at $221 million)
Adjusted EBITDA loss of approximately ($35) million, or approximately (7)% as a percentage of revenue.
Valuations:
Hard to value from our perspective as the company has no historical earnings and is not expecting earnings even on an adjusted basis this year or next (according to estimates). But the market loves the stock given the growth and prospects of future profitability.
So analysts are valuing the company on sales. Currently, the EV to Sales is in the range of 55 times trailing and 23 times next year’s expected sales. That is a rich multiple.
Management has provided a ~20% EBITDA margin target long-term. If you compare that to other SaaS businesses or even Shopify for example, which generated EBITDA margins of ~22% in that last quarter, the target in not completely out of the realm of possibility. But the company remains in the negative EBITDA margin category at present and the journey from negative EBITDA margins to 20% positive is not as easy as just setting the goal – particularly in a growth-by-acquisition story that has not produced a diem of cash flow. Now they likely could produce cash flow if they slowed growth, but they are being rewarded for growth, so that is not likely a smart proposition in present market conditions. The question is what happens to the stock if the market beings to focus more on cash flow?
Conclusion:
The revenue growth Lightspeed has produced, largely from acquisitions, has certainly been impressive as has the valuation the market has placed on the stock.
The consensus from Lightspeed Commerce’s 15 analysts is for revenues of US$527m in 2022 which – if met – would reflect a major 75% increase on its sales over the past 12 months. Again, this is great growth.
However, even if management was at its long-term target of 20% EBITDA margins the stock would be trading at over 150 times EV/EBITDA. That is a great deal of optimism priced into the stock.
The growth and vision looks good, but our minimum criteria is positive cash flow and while Lightspeed show great promise, it is not their yet and with a market cap of around $17 Billion Canadian, we need to see some cash flow before we jump in.
Smart to raise capital at present – self fulfilling. Really like to see what the organic growth rate is.