The Canadian equity markets have rebounded strongly over the past few months, with the S&P/TSX Composite Index rising 21.8% from its low point in April. The easing of geopolitical tensions in the Middle East and an improving macroeconomic environment have made investors optimistic, driving the equity markets higher. Amid renewed investors’ interest in equity markets, let’s assess which, between Shopify (TSX:SHOP) and Lightspeed Commerce (TSX:LSPD), would be an excellent growth stock to buy now.
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Shopify’s financials and growth prospects
In May, Shopify reported an impressive first-quarter performance, with its gross merchandise value (GMV) growing 22.8% to $74.8 billion. It was the seventh consecutive quarter of GMV growth exceeding 20%. The addition of new customers and increased same-store sales among existing customers drove its GMV. Meanwhile, its top line grew 26.8% to $23.6 billion, with the revenue from subscription solutions growing by 21.3% and merchant solutions growing by 28.9%.
Furthermore, its gross margin contracted by 100 basis points to 49.5% during the quarter due to higher cloud and infrastructure hosting expenses, as well as a decline in non-cash revenues from certain partnerships that carried higher margins. However, its operating expenses as a percentage of total revenue fell from 47% to 41%. Operating leverage and the company’s efforts to develop lean and efficient teams across segments helped to bring its operating expenses as a percentage of revenue down. Supported by all these factors, the company posted an operating income of $203 million, representing 9% of its total revenue. It is an improvement from 5% in the previous year’s quarter. Additionally, its free cash flow margin of 15% represents a 300-basis-point increase compared to the previous year’s quarter.
Moreover, the growing adoption of the omnichannel selling model has created a long-term growth potential for Shopify. The company is also developing and introducing innovative products and features that can meet the growing needs of its customers. Additionally, the continued geographical expansion of its payment solutions could also support its financial growth. Therefore, the company’s growth prospects look healthy.
LSPD’s financials and growth prospects
LSPD posted its fourth-quarter performance in May, with its topline growing by 10%. A 14% increase in transaction-based revenue and an 8% increase in subscription revenue drove its revenue. The company incurred a net loss of $575.9 million during the quarter, primarily due to a non-cash goodwill impairment charge of $556.4 million. Removing these special items, its adjusted net income stood at $15 million, representing a 76.5% increase from the previous year’s quarter.
Additionally, it generated adjusted earnings before interest, taxes, depreciation, and amortization of $12.9 million, a substantial increase from $4.4 million in the previous year’s quarter. Its cash burn from operating activities declined from $28.5 million to $9.9 million. With cash and cash equivalents of $558.5 million, the company is well-positioned to continue funding its growth initiatives.
Moreover, LSPD is focusing on developing new products that can strengthen forecasting and improve inventory management and supplier integration for retail businesses in North America. The expanding customer base and growing average revenue per user could support its financial growth in the coming quarters. Along with these growth initiatives, the company has undertaken several cost-cutting initiatives, which could continue to improve its margins.
Investors’ takeaway
Both Shopify and LSPD have witnessed strong buying over the last couple of months, rising 58.5% and 52.7%, respectively, from their April lows. Despite the strong returns over the last couple of months, Shopify is trading 14.2% lower compared to its 52-week high, while LSPD is down 39.7%. Given their discounted stock prices and healthy growth prospects, I expect the rally in both stocks to continue. However, I am more bullish on Shopify due to its solid financials and higher growth prospects.
