Lightspeed Commerce (TSX: LSPD) presents a solid investment opportunity near the current price levels. This technology stock is down about 31% year to date. Moreover, it has declined by over 33% from its 52-week high of $28.73. This significant decline in Lightspeed stock provides buying opportunities for investors at a discounted valuation so they may benefit from its subsequent recovery.
While the company faces short-term headwinds, these negatives are already factored into its share price. Lightspeed’s fundamentals remain strong, and the commerce-enabling company continues to deliver strong organic sales. Lightspeed is growing its customer base and expanding its average revenue per user (ARPU) and gross transaction volume (GTV) per location.
Additionally, its focus on strategic acquisition continues to broaden its customer reach, product offerings, and features and strengthen its competitive positioning.
But before I dig deeper, let’s understand why Lightspeed stock is underperforming the broader markets.
Outlook irked investors
This significant decline in Lightspeed stock stemmed from its leadership’s cautious near-term outlook. Notably, Lightspeed’s revenues are transaction-based and depend on GTV. It’s worth noting that Lightspeed’s management remains conservative on its GTV growth assumptions in the near term due to the ongoing macro headwinds. This could adversely impact its revenues.
Further, LSPD’s leadership is cautious about the pace of unified payments adoption in international markets. Notably, unified payments are a key driver of the company’s average revenue per user. Thus, lower adoption will hurt the company’s ARPU and overall profitability.
Growth to reaccelerate
Lightspeed is poised to capitalize on the ongoing digital transformation, particularly as many of its target customers continue using outdated payment systems. The company’s management expects most customers to transition to cloud-based solutions in the coming years, presenting a significant opportunity for Lightspeed.
With its comprehensive software platform and unified suite of tools, Lightspeed is well-equipped to cater to the diverse needs of small- and medium-sized customers. It’s worth highlighting that by integrating payments into its software platform and making it mandatory for eligible customers, Lightspeed anticipates improving unit economics and margins over time. This strategic move enhances the stickiness of its customer base and sets the stage for upselling additional products to its existing clients.
Furthermore, Lightspeed has changed its strategy and focuses on acquiring high GTV customers. It’s worth highlighting that these customers utilize multiple company modules, thus lowering churn risk. Also, these customers contribute significantly to the company’s ARPU, enabling the company to deliver sustainable earnings in the long term.
Lightspeed saw a 7% growth in customer locations, with GTV surpassing one million and 500,000 annually during the third quarter. With management’s focus on high GTV customers, this figure will likely continue to increase in subsequent quarters. Additionally, the total ARPU for the quarter reached $447, marking a substantial 28% increase compared to the previous year.
Bottom line
With its low valuation and high growth potential, Lightspeed presents a solid investment opportunity near current levels. Notably, the company faces headwinds in the short term, which could limit the recovery. However, its focus on growing high GTV customers, expanding unified payments globally, and delivering profitable growth will likely push its stock higher in the long term.
