Lightspeed Stock Drops 24% After Earnings, and I Think it’s a Buy

Lightspeed (TSX:LSPD) stock fell by 24% after earnings disappointed, but CEO JP Chauvet says the company is right on track.

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It’s been an interesting year for Lightspeed Commerce (TSX:LSPD) chief executive officer JP Chauvet, to say the least. On the one hand, Lightspeed stock has managed to do exactly what it set out to do in the last year. The company is in a strong financial position and building a business that spans the globe in a way that no other company has.

And yet, to look at its share price, you’d think the business was floundering. But that may not be the case for much longer, given where Lightspeed stock is headed.

Why the drop?

Shares of Lightspeed stock dropped this week as the commerce software vendor reported its third-quarter earnings. And honestly, the results were quite strong. The company beat out earnings estimates pretty much across the board, seeing organic revenue growth climb 27% year over year. The stock continued to expand its Unified Payments as well, with 29% of clients now using the platform. This was a 4% increase just since the last quarter.

Yet it seemed that investors and analysts were far more focused on two other areas. Lightspeed stock reported a net loss of US$40.2 million, with subscription revenue increasing just 9% in the last year. The thing is, as Chauvet said in an interview with the Motley Fool, it’s all part of the plan.

“Capital is doing extremely well. It’s growing at least twofold year over year, with strong demand for our cash advance business. But we’re using our balance sheet because we’re so well capitalized,” Chauvet said. “All the acquisitions show up as net loss. And then free cash flow is negatively impacted by all of the the lending we’re doing and the cash advances we’re doing.”

Things will turn around sooner than you might think

As for subscription revenue, Chauvet said the company right now is focused on Unified Payments. Yet not only does this mean less attention on subscription growth, but it’s also meant the company hasn’t increased their subscription price drastically over the last year.

“If we were to do a 30% increase on our subscription, of course, we’d be showing strong growth on software,” Chauvet said. “All of our account management teams are not focused on upselling software right now. They’re focused on getting customers live on payments … As soon as payments are behind us … we’re going to start redirecting people back onto software and seeing strong software growth.”

What’s more, this could happen as soon as next quarter. Once Unified Payments is steady in North America, account managers will start upselling software once more. While Europe might take a few quarters, by the summer, there should be more software growth, with even more in the next year.

Lower rates; higher GTVs

Another point that Chauvet made is that should lower interest rates come down by the summer, as economists believe they will, this should lead to more cash on hand for consumers. More cash on hand should also lead to more Gross Transaction Volume (GTV), another area that saw lower growth this quarter — especially during the next quarter, with January to March usually lower in the hospitality and retail industry.

Yet overall, it seems as though the market overreacted to recent earnings from Lightspeed stock. The company remains an incredibly strong business, marking the second quarter where the company was profitable. Its Unified Payments plan provides solid long-term revenue streams. What’s more, demand remains strong, and that strength comes from well-established merchants. Merchants who are willing to spend more on Lightspeed stock’s better systems.

“We are in control. We are well capitalized. We have very competitive markets. We’re the only global player,” Chauvet said. “We’re growing at 27% year over year. And I don’t know many companies that have scaled like we have that are still growing at this rate.”

Bottom line

Lightspeed stock offers a huge opportunity for today’s investor. The scaling out of payments and the return to software growth could cause a surge by the end of 2024 — especially as it continues to turn a profit.

So, if you’re looking for a quick turnaround in share price, that’s not likely to happen until the summer. However, if you’re a smart investor looking for a long-term hold, Lightspeed stock certainly belongs on your watchlist today.

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 Amy Legate-Wolfe has positions in Lightspeed Commerce. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy.

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