Due to supply chain and branding issues, slower than expected market growth and of course, regulatory woes and sector controversy, names like Aurora Cannabis and Canopy Growth are up “merely” 28% and 9%, respectively, for the year, well off their earlier highs made in the spring.
On the other hand if you had invested in Lightspeed POS (TSX:LSPD) and Shopify Inc (TSX:SHOP)(NYSE:SHOP), your year to date would look remarkably different, as these two names have returned 155% and 174%, respectively.
Here are a couple of reasons why these two stocks are the TSX’s growth darlings.
Lightspeed operates point of sales systems much like its larger American counterpart, Square. Unlike Square however, Lightspeed targets medium sized enterprises with gross merchandise volumes of around $400k per year, while Square’s primary users are much smaller in scale.
Since its IPO in March, Lightspeed has been on a tremendous growth path with revenues experiencing 40% annualized growth between 2014 and 2018.
Lightspeed has been able to maintain this pace in this highly competitive arena by offering a very comprehensive loyalty module for its merchants, featuring SMS/ email notifications, marketing and SEO tools and embedded inventory management software.
Going forward, the company will be ramping up its Lightspeed Payments offering, which will generate revenues based on the portion of merchandise volumes.
So far, this service is being trialed in the States, but if we see mass adoption of Payments across its platform, Lightspeed’s growth will grow at, well, the speed of light, since ~$14.5 billion worth of goods moved through its systems last year.
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Unless you’ve been living under a rock, you’re going to be familiar with this Canadian tech darling. Throughout its life as a public company Shopify trades at very lofty valuations, thanks to its growth trajectory.
And if last quarter proved anything, it’s that these valuations are warranted. In 2Q19, Shopify smashed the Street’s estimates of $350 million in revenues by delivering $362 million on the top line.
Moreover, monthly recurring revenues (MRR) grew 34% year over year as Shopify Plus adoption increased to 26% of MRR, from 23% in the prior year.
This is particularly important since Plus is Shopify’s marquee enterprise offering for merchants with $500k or more in annual sales, and higher adoption of this service means the company is able to leverage is gross merchandise volumes (which grew 51% year over year to $13.8 billion in Q2) to drive MRR growth.
Another key driver of future revenues will Shopify’s fulfillment network, which will provide merchants with a network of distribution centers to lower shipping costs and time, so they can focus on scaling up.
Successful implantation of the fulfillment network of course means increased customer retention and faster adoption of Plus.
The bottom line
Lightspeed and Shopify have been on a tear this year and if their growth plans pan out, we can see even more gains next year. Does this mean that you should completely forgo cannabis for one of these tech names?
Certainly not, however, starting a small position on a pullback in Lightspeed or Shop, couldn’t hurt.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor VMatsepudra has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify and Square. The Motley Fool owns shares of Lightspeed POS Inc, Shopify, Shopify, and Square and has the following options: short September 2019 $70 puts on Square. Shopify is a recommendation of Stock Advisor Canada.