It was a tough earnings season for Lightspeed Commerce (TSX: LSPD) last month, when Lightspeed stock came out with earnings that, overall, actually looked pretty strong! Management was fairly surprised to see shares drop substantially but might be even more surprised to see that they’ve come down by 27% since earnings were reported almost one month ago.
What happened?
The third-quarter earnings had some positive aspects, which included positive earnings before interest, taxes, depreciation, and amortization (EBTIDA). This was for the very first time, with overall revenue estimates also beating estimates.
However, there were more than a few notes that Lightspeed stock had to contend with. This included weaker-than-expected subscription revenue growth. Overall revenue was up 27%, but subscription revenue increased just 9%. This was quite the plunge from the double-digit growth investors have grown used to.
Further, there was a focus on long-term growth over short-term profitability. This led to a wider net loss of US$40.2 million. Lightspeed stock also went on to note that the future was uncertain given the economic climate. In fact, that a softening economy would lead to more concerns — for the company as well as investors.
New (old) CEO steps in
Founder Dax Dasilva came back into the role of chief executive officer (CEO) after leaving at a point where a focus on profitability was needed. Now, Dasilva has stated he’s back to get the company growing its subscriptions again. They want to prioritize long-term profitable growth, and that would mean through subscription revenue.
Dasilva expressed confidence in the company’s model, wanting to demonstrate trust once more for investors. And despite acknowledging a difficult economic climate, he believes Lightspeed stock can navigate the challenges and emerge stronger.
Now, Lightspeed stock’s growth hinges on several factors. This includes meeting or indeed exceeding investor expectations for revenue growth, with a particular emphasis on subscription revenue. Further, there is a clear and demonstrated path towards profitability, with management managing costs. With the addition of a positive industry outlook and company news, this should help rebuild investor confidence once more.
What investors can watch for
For now, continue to watch Lightspeed stock for its future earnings. Not just on the surface, but look back at the last few quarters as well to see if there is momentum upwards or downwards. Focus on the company’s revenue growth and subscriptions as well as profitability and financial health in that time.
On a more macro level, look at the company’s competition to see how they’re performing. Then, see how Lightspeed stock stacks up and stays competitive. One way it’s already achieving this is through a focus on enterprise clients, those making over US$500,000 per year, especially in niche markets, such as golf and hospitality, as it has done. So, we certainly want to see growth here as well. However, the company should also find new ways to use technology for its own benefit as well as clients’. Whatever creates better efficiency and streamlines operations.
Furthermore, there should be a focus on the overall market sentiment. If the market is doing well, and the Lightspeed stock looks to be performing better than before, it might be a good time to jump back in. Continue to follow company news and developments as well as analyst ratings for clues on when this might be.
Bottom line
Yet, of course, do not invest if your portfolio doesn’t allow it. This is still a riskier investment, so if you don’t have any more risky room in your portfolio, it might be best to stay on the sidelines — for now, at least.
