Shares of Lightspeed Commerce (TSX:LSPD) have declined approximately 33% from its 52-week high of $28.73. Moreover, Lightspeed stock has seen a drop of nearly 31% year to date. The downturn in the shares of this commerce-enabling company was spurred by management’s cautious near-term outlook.
During the third-quarter (Q3) conference call, Lightspeed’s leadership expressed a conservative stance regarding gross transaction volume (GTV) growth, citing macroeconomic challenges and the pace of adoption of its Unified Payments in international markets. Additionally, they noted that the first month of the current year did not show any improvement. These remarks unsettled market participants, triggering a selloff in Lightspeed stock.
While management’s cautious stance may indicate concern in the short term, Lightspeed’s fundamentals remain strong. This technology company continues to deliver durable revenue growth, buoyed by increased customer locations with higher gross transaction volume (GTV). Furthermore, its average revenue per user (ARPU) is improving, which is positive and would enable the company to deliver sustainable earnings in the long term. Additionally, its ability to acquire and integrate companies expands its customer base and accelerates its growth.
Consequently, this significant decline in Lightspeed stock presents an outstanding opportunity to acquire shares at a discounted price and capitalize on its recovery. In light of this, let’s explore why Lightspeed can turn things around.
Lightspeed’s growth to accelerate
Lightspeed’s top-line growth rate accelerated in the past two consecutive quarters, led by its unified payments and point-of-sale (POS) platform initiatives. While near-term macro headwinds could pose challenges, the increase in customers switching to its unified suite of tools will likely accelerate its long-term revenue growth rate and support its financials.
Lightspeed’s gross payment solutions increased 69% year over year in the third quarter. Further, gross payment volumes (GPV) were about 29% of its GTV. This implies the company has a significant runway for growth in the coming years.
Adding to the positives, Lightspeed continues to shift towards high GTV customers, which substantially lowers the risk of churn. Further, these customers have a higher lifetime value for the company than the lower GTV/year customers, as they can adopt its multiple modules. These customers support Lightspeed’s ARPU and position it well to deliver sustainable earnings in the long term.
Notably, there was a 7% year-over-year increase in Lightspeed’s customer locations, generating over $500,000 annually in GTV. Further customer locations surpassing $1 million in annual GTV also marked a 7% growth.
It’s worth highlighting that Lightspeed achieved positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) for the second consecutive quarter in the third quarter (Q3). Moreover, its overall cash burn is on a downward trend.
Besides growing organically, Lightspeed will benefit from its accretive acquisitions. Its acquisitions drive customer locations, accelerate product development, and strengthen its competitive positioning.
Bottom line
Overall, Lightspeed’s solid revenue growth led by unified payments and POS platform initiatives, growing GTV and GPVs, focus on expanding its product offerings, and strategic acquisitions position it well to capitalize on the digital shift. The company is lowering its cash burn and emphasizing driving profitable growth, which is positive.
Lightspeed’s fundamentals remain strong. Meanwhile, its stock is too cheap to ignore near the current price levels. It is trading at a forward enterprise value/sales multiple of 1.4, which is near the all-time low and significantly below its historical average. This makes LSPD stock attractive on the valuation front and supports my bull case.
