The Canadian equity markets are on an upward momentum this month, with the S&P/TSX Composite Index rising 6.5%. The signs of inflation cooling down have led investors to believe the Federal Reserve could cut interest rates earlier than previously projected, thus driving the equity markets higher. Amid this optimism, growth stocks are back on focus.
Lightspeed Commerce (TSX:LSPD), which offers omnichannel commerce solutions to businesses, is up around 32% this month. Along with improving investors’ sentiments, its solid second-quarter earnings of fiscal 2024 drove its stock price. Despite the recent hike, the company trades at a substantial discount compared to its 2021 highs. So, let’s assess whether Lightspeed would be a good buy at these levels by looking at its recent performances and growth prospects.
Lightspeed’s second-quarter performance
Earlier this month, Lightspeed posted an impressive second-quarter performance, which ended on September 30. Its revenue grew 25% to $230.3 million, better than the management’s guidance of $210 million – $215 million. The growth in both transaction-based and subscription-based revenues drove its topline. Year over year, its transaction-based revenue grew by 36%, while its subscription revenue grew by 9%. The company processed $23.5 billion of gross transaction value (GTV), a 5% growth compared to its previous year. The growth in its hospitality business outperformed the omnichannel retail business, driving its GTV.
Amid the top-line growth, Lightspeed’s net losses also witnessed a steep decline from $79.9 million in the previous year’s quarter to $42.5 million. However, removing special items, its adjusted EPS (earnings per share) stood at $0.04 compared to a loss of $0.05. Further, the company posted an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $0.2 million. It was the first time the company reported a positive adjusted EBITDA, which is encouraging. Meanwhile, it closed the quarter with a cash and cash equivalent of $761.5 million. So, it is well equipped to fund its growth initiatives.
Lightspeed’s outlook
Lightspeed is focusing on innovation to drive growth. Last quarter, it introduced several new products for restaurant and retail businesses. Supported by these launches, the company is witnessing a shift in its customer base towards higher GTV customer locations. During the quarter, customer locations with GTV of over $1 million/year and $500,000/year grew by 9% and 8%, respectively. Meanwhile, customer locations with GTV of less than $200,000/year declined year over year.
Customer locations with GTV higher than $500,000/year exhibit lower churn risk and higher lifetime value. So, the customer transition towards higher GTV customer locations should be encouraging. Meanwhile, the company continues to expand its payments platform, which could continue to drive its financials in the coming quarters. Further, its ARPU (average revenue per user) has grown by 26% this quarter to $425.
Amid these encouraging indications, Lightspeed’s management has raised its guidance for fiscal 2024. The management hopes to generate revenue of $890 million to $905 million while delivering a breakeven adjusted EBITDA. Further, the e-commerce growth has created a multi-year growth potential for the company.
Investors’ takeaway
Despite the 32% increase in stock value this month, Lightspeed is down over 86% from its 2021 highs. Besides, its price-to-book and next 12-month price-to-sales multiples stand at 1 and 2.5, which look attractive for a stock growing its financials at a healthier rate. So, I believe investors with an investment horizon of over three years can accumulate the stock to earn superior returns.
