Lightspeed Commerce (TSX: LSPD) is one of those stocks that shows how you never know what’s going to happen in markets. It went public for $18.90 and now trades for $27.82. That might look like a decent gain, and it was: in fact, the stock’s gain from 2019 to today outpaced that of the TSX Composite Index. The problem is that the stock has been trending downward since its September 2021 high ($159) and has therefore been a losing position for many of its later investors.
In this article, I will explore whether LSPD can get its mojo back and become the “millionaire maker” it once looked like it was going to be.
Why is Lightspeed stock going down?
The main reason why Lightspeed Commerce stock is going down is because the company isn’t profitable. It hasn’t had a profitable year since it went public in 2019, and the losses as a percentage of revenue have grown larger. In 2020, Lightspeed’s gross profit was 57% of revenue. In 2022, it was a mere 43% of revenue! In the same period, the net loss went from 45% of revenue to 120% of revenue! So, Lightspeed’s losses are getting larger in absolute terms and as percentages of revenue. The situation is not so good, to put it mildly.
Can it ever recover?
Having established that Lightspeed’s profitability is getting worse, we can try to gauge whether there’s anything the company can do to turn the situation around.
First, let’s look at its lineup of products. Lightspeed is a technology company best known for selling Point-of-Sale (POS) software. POS is the kind of software that operates cash registers. It also has other features like accounting and inventory management. The POS software is quite popular; I’ve seen it in stores many times. Then, there’s the company’s e-commerce shopping cart software. This is a relatively small segment for Lightspeed, which got into it by buying Ecwid for $500 million.
The problem with POS software is that it’s very competitive. Dozens of companies are into it, and there isn’t a clear winner. Such market dynamics tend to result in low profits. E-commerce software is a bit less competitive, but here, Lightspeed is up against a clear market leader: Shopify.
Let’s look at the fundamentals. In its most recent quarter, Lightspeed reported the following:
- $230 million in revenue, up 26%.
- A $49 million net loss, which was smaller than in the quarter before but larger than quarters further back in the past.
- $200,000 in earnings before interest, taxes, depreciation, and amortization.
Basically, Lightspeed is not profitable. It’s still losing money, and while last quarter showed the loss shrinking as a percentage of revenue, the negative margin was still large: 24%. On the whole, Lightspeed looks like a rather typical growth stock with no earnings.
Foolish takeaway
Taking everything into account, I do not see Lightspeed stock as a millionaire maker. The company is just losing too much money to get people interested. Maybe someday it will take off. But that day is not in the near future.
