The Canadian IPO scene hasn’t seen much activity in recent years. Ever sinceĀ ShopifyĀ (TSX: SHOP)(NYSE:SHOP) and various weed stocks went public about three years ago, there has been relatively little activity except for on the small cap exchanges.
In the midst of all this, however, one Montreal tech company has managed to buck the trend.
Lightspeed POS LtdĀ (TSX: LSPD) is a point-of-sale company that builds integrated e-commerce, hospitality and supply chain management solutions. Much more than just a POS terminal, its product rolls sale processing and value-adding analytics all into one.
It’s an innovative service offering that’s reminiscent of what Shopify is doing but with a few key differences. In this article I’ll be exploring why Lightspeed’s IPO was such a success and whether the stock still has upside after its early head start.
A mega-successful IPO
In 2019, IPO has become something of a dirty word, after Uber and Lyft’s highly publicized offerings went over like lead balloons. The reasons for 2019’s disastrous IPOs have varied, but mainly centre around GAAP losses in the hundreds of millions. Although Uber has managed to recover somewhat from its weak start, Lyft is still floundering, and neither one is delivering big returns.
Why has Lightspeed defied the odds?
There are a few reasons why Lightspeed has done well compared to other 2019 IPOs.
First, it’s a fast-growing company, with revenue up 36% year-over-year and growing faster than expenses (full year). Second, its operating loss ($23 million) was tiny as a percentage of revenue ($77 million). Third, while the company’sĀ net loss was pretty massive at $181 million, that was almost entirely due to a fair value loss on convertible preferred shares, which won’t be a recurring factor.
If we take the preferred share conversion shenanigans out of the equation, Lightspeed is impressively close to profitability for a new IPO.
A fast-growing industry
Another factor LSPD has going for it is that it’s in a fast-growing industry. According to Grand View Research, POS services are expected to grow at 7.8% CAGR until 2025, a rate that exceeds the expected growth in all industries. Lightspeed, as a new startup, has more room to grow than the average company in the space. Therefore, we can expect significant growth for this company going forward.
Shopify comparisons abound
When discussing Lightspeed, it’s hard to avoid comparisons with Shopify.
Similar to Lightspeed, Shopify is a recently IPO’d company that makes most of its money off processing payments. Although Lightspeed is more focused on brick and mortar retail than is Shopify, the two companies have a lot of overlap.
Since its IPO, Shopify has been growing like wildfire, rising over 1000% and consistently posting year-over-year revenue growth around 50%. If Lightspeed can do even half as well, it’s got a great future ahead of it. It’s too early to call Lightspeed a buy just now.
If it keeps growing as well as it has been while keeping expenses under control, it may be a great growth stock to own.
