Lightspeed Commerce Inc.
(LSPD-T, LSPD-N) C$88.93 | US$71.36
Q2/F22 Results: Oversold, Upgrading to ACTION LIST BUY Event
Following the ~28% decline yesterday after the company reported Q2/F22 results, we are upgrading LSPD to ACTION LIST BUY from Buy.
Impact: MIXED, but upgrading following significant multiple contraction
Lightspeed is now trading below pre-pandemic multiples. Following yesterday's decline, Lightspeed is now trading at 14.5x forward revenue, below its pre-pandemic average of 16.6x. We were cautious of rising interest rates having an impact on high-multiple names like Lightspeed, but yesterday's pullback has reduced this risk, in our view. Moreover, the current multiple is nearly one standard deviation below its average historical multiple, since the company's IPO in 2019. We believe that the pandemic has accelerated ecommerce market growth and argue that ecommerce solutions vendors should trade at a higher multiple than they did before the pandemic. Moreover, we believe that Lightspeed is set up for accelerating growth, given the broader global availability of Lightspeed Payments.
Lightspeed Payments is nearly three years old, the same age as Shopify Payments in 2016. Lightspeed introduced Lightspeed Payments to its U.S. retail merchants in 2019. Nearly three years later, Lightspeed Payments is now available across all its major geographic markets and covers 75% of its merchant locations. Shopify introduced Shopify Payments in 2013 and it has since been the primary growth driver for Shopify. Shopify's Payments revenue grew at a 75% CAGR from 2016-2020, a good case study of the potential growth Lightspeed's solution could generate. We believe that Lightspeed is still very early in its payment strategy, with only 11% of its GTV processed through Lightspeed Payments, and is poised for accelerating growth, given that Lightspeed Payments was only just launched in Europe and APAC. The company has already signed on 800 customers in the EU, tracking ahead of the North American rollout, when it was first introduced there.
TD Investment Conclusion
Reducing target price to C$130.00. Although we believe that the next couple of quarters can be volatile with an uncertain supply-chain environment and varying pandemic responses, we remain confident that Lightspeed will accelerate growth, as Payments adoption increases and markets normalize