Lightspeed Commerce (TSX:LSPD) may finally have its comeback story.
Lightspeed stock reported earnings this week, with investors dropping the stock by about 11% in early morning trading. Yet it seems as investors read further into the decline. Shares started to creep back up as they read about a slower, cleaner, and healthier era.
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What happened
After years of chasing growth across too many markets, Lightspeed stock now wants investors to focus on one thing: profitable growth. Chief executive officer Dax Dasilva made that clear in an interview with Motley Fool Canada, after the company reported earnings and doubled down on a three-year transformation plan designed to reshape the business.
“We’re out of this era of growth at all costs,” Dasilva said. “We have to be in a mindset of profitable growth.”
That may be the biggest shift retail investors need to understand. Lightspeed stock no longer wants to win everywhere. It wants to dominate where it already has a real edge.
The company reported US$1 billion in annual revenue, up 14% year over year. Dasilva also highlighted that Lightspeed stock reached its targeted three-year compound annual growth rate (CAGR) range of 10% to 15% within the first year of the transformation strategy.
“That strategy of focusing on our two growth markets and accelerating outbound sales, it’s really worked,” he said.
A new era
Now, Dasilva is pitching something much more disciplined. The clearest example may be the Upserve divestment. Lightspeed stock sold the U.S. hospitality platform to focus more aggressively on North American retail and European hospitality, its strongest markets.
Dasilva noted Lightspeed stock benefited a lot from Upserve, with the asset bringing in immense cash flow over the last few years. Importantly, Lightspeed stock’s growth engines now make up 75% of revenue, and Dasilva kept much of the talent and technology from Upserve that powers parts of its hospitality platform.
“The market, at some point, will start to really see the growth engines as a bigger and bigger portion of our business,” Dasilva said, stating next year these could likely hit 80% of revenue.
Revving those engines
These growth engines now focus on two areas. North American retail remains the company’s original strength. Dasilva said Lightspeed stock built deep expertise serving complex retail businesses, especially in high-value inventory categories like apparel, outdoor sporting goods, golf, bikes, and jewellery.
At the same time, European hospitality has quietly become a major force for the company. Dasilva stressed how strong Lightspeed stock’s presence became across Europe, particularly in full-service restaurants. That international footprint may surprise some Canadian investors who still mostly associate Lightspeed with North America.
Lightspeed stock also appears to be evolving its sales strategy in a major way. Historically, Lightspeed relied heavily on inbound marketing, where businesses found the platform through ads or organic demand. Now it’s investing heavily in outbound sales teams that directly target ideal customers, hiring roughly 150 sales representatives across retail and hospitality. This includes large field sales operations now spread across major European cities.
What to watch
Retail outbound sales may become especially important to target larger merchants, and improve retention and transaction volume. Dasilva highlighted NuORDER as a key advantage, allowing merchants to connect directly with brands such as Levi’s, Carhartt, Lululemon, Knix, and Sorel within the platform itself.
But the bigger investor story may be where the company expects to go over the next three years.
When Dasilva returned to lead the company again, Lightspeed generated more than US$1 billion in revenue but relatively little profitability. The new transformation plan aims to change that financial profile dramatically.
By the end of the three-year strategy, Lightspeed stock expects to generate roughly US$100 million in free cash flow. That could represent a major turning point for investors who once viewed the company as a growth stock without enough financial discipline. Meanwhile, the company has already been hitting targets during its first year, flying past its three-year CAGR targets.
Bottom line
Of course Lightspeed stock still faces rivals like Shopify and Toast. It needs to prove consistent profitability, especially as investors burned during the stock’s collapse remain cautious. Yet it now looks less focused on explosive expansion and more on a durable long-term compounder. For retail investors, that could end up being the more important story.
