Find a solution to a common problem
Lightspeed POS (TSX: LSPD) is a point-of-sale technology company that has developed an omnichannel platform to facilitate commerce for small and medium-sized businesses. This software is designed to support growth and scalability by consolidating all software services into one service. This allows small and medium-sized business owners to manage inventory, services, data, people, and customer relationships with a single service provider. Lightspeed targets restaurants and retail stores and has experienced strong growth. Let’s take a look at his prospects.
Unique financial model
Lightspeed’s financial model targets subscriptions and recurring payments. This model allows Lightspeed to generate 90% of recurring revenue. This model allows Lightspeed to be able to resell new modules when they are released. But is this model correlated to financial parameters?
Lightspeed has a solid history of customer growth. From 2017 to 2020, Lightspeed grew from 35,000 customers to 74,000 customers. Consequently, revenue increases from $ 42.6 million in 2017 to $ 77.5 million in 2020. With these revenues, Lightspeed generates an exceptional gross margin of 70% in 2019 and has continuously improved the gross margin since 2017. Lightspeed also reduced EBITDA losses from $ 24.4 million in 2017 to $ 13.1 million in 2019.
Outlook update and COVID-19
Lightspeed predicted before the virus that total revenues would reach $ 120 million, representing total revenue growth of 55% year-over-year. I think because of the coronavirus, this projection will take a hit. With retail stores closed and restaurants unable to be taken away, this places Lightspeed in a difficult position to generate income. I wouldn’t be surprised if we saw revenues decline over the next few quarters after Lightspeed provided details on how COVID-19 has affected operations.
Lightspeed has put in place an action plan to retain customers through subscription discounts, deferred payment agreements and cost containment measures. It is hoped that this plan will retain customers to secure recurring income, but will most likely be expected income until the viral situation is brought under control. When business returns to normal, I believe Lightspeed will gain loyalty through the short-term support provided to customers, thereby increasing long-term revenues.
The market has integrated COVID-19 into the stock market. Before the virus, Lightspeed was priced at around $ 40 per share. Since the virus, Lightspeed has dropped to $ 12 a share and has grown steadily ever since. I believe the company has strong potential for recovery by having about $ 300 million in cash to weather the storm and that it can revert to the business model that Lightspeed has proven successful.
The question is whether Lightspeed can continue to show exceptional revenue growth. If Lightspeed can, there should be no problem growing like Shopify. As of writing at $ 21 a share, I think it’s an incredible entry point to get in before Lightspeed takes off. Buy before the stock price goes up!
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Crazy contributor Andrew Gudgeon has no position in any of the stocks mentioned. Tom Gardner owns Shopify shares. The Motley Fool owns shares and recommends Shopify and Shopify. The Motley Fool owns shares of Lightspeed POS Inc.