Facing some skepticism, Lightspeed Commerce is trying to convince investors that the cloud commerce specialist is doing better than its stock price suggests.
The title of the Montreal company has fallen to the threshold where it was when it went public in 2019. Lightspeed is however far from being returned to square one, defends its CEO, Jean Paul Chauvet, who has met separately with investors and journalists earlier this week to present the major aspects of its strategy.
Lightspeed is not the only one to have suffered stock market setbacks, underlines Mr. Chauvet. All growth stocks in the technology sector fell amid rising interest rates. “I see investors as tides: they leave and they come,” illustrates the leader sitting in his office, located at the company’s new head office in Montreal.
The Montreal company has changed since its IPO, says Mr. Chauvet. The company, of which the Caisse de depot et placement is the main shareholder, has made nine acquisitions in four years. Their integration with Lightspeed’s service offering allows its platform to perform more complex functions, he explains.
The company now wants to take advantage of its renewed offer to consolidate its services under a single brand, increase the share of its customers who use its payment system and focus the efforts of its sales team on larger customers. It believes that this strategy would allow it to post adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in positive territory next year.
Scotiabank analyst Kevin Krishnaratn calls the strategy credible at a time when Lightspeed’s stock, which has lost 85% of its value since August 2021, would be a boon, he said. “The current valuation is a unique opportunity to buy a business with anticipated growth above 30% over the medium term, given multiple catalysts and a clear path to profitability. »
Focus on more profitable customers
During his presentation, Mr. Chauvet emphasized the company’s focus on attracting the most profitable customers. Despite representing only 54% of their customer base, outlets generating more than $500,000 in gross transaction value (GTV) generate 94% of revenue from this source.
It is with this cohort of customers that the company wants to focus the efforts of its sales team. Mr. Chauvet believes that larger customers earn more revenue and are more resilient in times of economic downturn, such as the one on the horizon.
To better gauge Lightspeed’s performance, the executive suggests investors shift their focus from customer growth to large customer numbers.
“If you look at all the customers, it’s sure that the growth is 1000 (points of sale in the most recent quarterly results published in November) and that people are disappointed, but who cares. Those who are the biggest impediment to our growth (customers with a GTV of less than $200,000) represent only 5% of GTV. They are not important to Lightspeed. »
In its most recent quarterly results, the number of customers with GTV over $500,000 increased 25%, compared to a 3% decline for customers with GTV under $200,000.
A slowdown
However, the economic outlook is darkening for retail as consumers cut back on non-essential spending amid high inflation.
Mr. Chauvet acknowledges that the context is difficult. The company has also revised its forecast slightly downwards as the crucial holiday season approaches.
During a difficult economic environment, Lightspeed’s technology solutions, which include payment systems and inventory management, make life easier for merchants, believes the leader.
“The buying habits of consumers who shop on site and online, which creates more complexity for retailers, the costs linked to inflation, the difficulty in finding the necessary labor, these factors plead in favor of Lightspeed. »
For the next two years, Todd Coupland of CIBC Capital Markets, however, believes the economic downturn will have an impact on Lightspeed. Even though he judges that the company has the right strategy and that the stock is affordable compared to that of its peers, the analyst issues forecasts for revenue growth that are lower than those of the company. “Due to a slowdown in macro trends, we expect GTV growth and new customer acquisition to be more subdued. »
In these uncertain economic times, Mr. Chauvet assures that the quest for profitability will not go through job cuts like those announced by several technology companies this year, including Shopify, Meta and Amazon.
“We have 351 open positions and if we could (fill) them today, we would. We spend a fortune on hiring, on recruiters. We have to bring these people in as quickly as possible because there is a demand. »