The financial technology (“fintech”) industry is one of the hottest growth industries in the world today. With big names like Paypal, Block and Stripe making headlines daily, it’s not hard to see why. Banking is a $2.8 trillion-a-year industry. Companies that “disrupt” it could potentially become among the biggest in the world.
It’s only natural, then, that Canada would have a few hot fintech names of its own. Canada is renowned worldwide for its stable and resilient banks. That expertise provides domain knowledge that can carry over to areas where finance and technology intersect. With that in mind, I will spend the rest of this article exploring a fast-growing Canadian fintech whose recent results have been nothing less than impressive.
Lightspeed Commerce
Lightspeed Commerce (TSX: LSPD) is a Canadian fintech and e-commerce software company. Its main claim to fame is developing point-of-sale (POS) software. POS software is the software that operates cash registers and other payment systems in retail stores. For years, Lightspeed was named “Lightspeed POS,” reflecting its focus on that one product category. Later the company branched out into other business activities, including e-commerce platforms and fintech.
Lightspeed’s main ‘fintech’ feature is its payments system, which processes payments for both retail POS and e-commerce. It is similar to other payment systems, but differentiates itself on security features, including 24/7 monitoring by security experts.
Lightspeed, like many other tech stocks, has fallen dramatically over the last 12 months. Since June of 2022, it has fallen 27%. That’s quite a sell-off, although the momentum so far this year has been positive. In the next section of this article, I’ll explore why that’s been the case.
Recent earnings
Lightspeed Commerce’s most recent earnings release was a beat, beating on earnings by $0.01 and revenue by $346,000. In the release, Lightspeed delivered:
- $730.5 million in revenue, up 33%.
- $-74.5 million in net income.
- $-0.49 in EPS, which was less as a percentage of revenue than in past quarters.
It was a pretty good showing. The company beat expectations and its revenue growth was strong. Still, the strong earnings results were not enough for LSPD to fully recover from the drawdown it took in 2022. In the next section, I’ll explore the reason why investors may still be skeptical of Lightspeed Commerce in 2023.
Short seller allegations
The main reason why Lightspeed stock started falling in 2022 was because of a short report by Spruce Point Capital. The report accused Lightspeed of aggressive revenue recognition, overpaying for M&A deals, and using deceptive accounting practices. The report created quite the splash when it came out, sending LSPD stock tumbling by double digits in a single day. After that, Lightspeed stock continued tumbling, being hit by the overall volatility in tech stocks that pervaded in 2022. As of today, it still hasn’t fully recovered.
Is it a buy?
Having looked at Lightspeed’s financials, business fundamentals and risks, it’s time to answer the most important question:
Is the stock a buy?
Certainly, Lightspeed is a stock worth watching. It has fast revenue growth and a good brand. However, it is not profitable and trades at 225 times the best estimate of next year’s earnings. I’d say a small position in a well-diversified portfolio is justified here, but not a large one.
