Digital Payments And Cloud Commerce Will Fuel Global Growth

Key Takeaways

• Outbound sales, product innovation, and AI-powered solutions may drive faster-than-expected customer growth, rising ARPU, and stronger revenue and margin expansion.
  
• Increasing payments penetration and accretive M&A could bolster margins, free cash flow, and global market share beyond current expectations.
  
• Mounting competitive pressures, execution risks, and industry commoditization threaten Lightspeed Commerce's growth prospects, profitability, and ability to expand its addressable market.

Catalysts

Engages in sale of cloud-based software subscriptions and payments solutions for single and multi-location retailers, restaurants, golf course operators, and other businesses in the United States, Canada, the United Kingdom, Australia, and internationally.

• Analyst consensus believes Lightspeed's ongoing investments in outbound sales and product innovation will drive double-digit location growth, but this likely underappreciates the ramping impact of its outbound reps-once productivity normalizes, Lightspeed could see customer location growth and software ARPU accelerate faster than current targets, supporting outsized revenue and margin expansion well into fiscal 2028.
  
• While consensus expects margin expansion from cost discipline and software mix, rapid growth in high-margin proprietary payments and capital revenues-bolstered by higher payment penetration rates in both growth and efficiency markets-can drive a more pronounced improvement in gross margins and free cash flow than currently forecasted, rapidly boosting earnings.
  
• The accelerating shift by SMBs worldwide toward cloud-based, omni-channel digital commerce platforms plays directly into Lightspeed's unique integrated solution, providing a massive pipeline of potential high-value customers and supporting long-term compounding revenue growth as the global addressable market expands faster than previously modeled.
  
• Lightspeed's differentiated adoption of AI, both internally for operational leverage and within its merchant-facing products, is catalyzing product velocity and superior customer value, which should materially enhance upsell rates, net revenue retention, and eventually drive higher ARPU and margins compared to peers.
  
• As platform consolidation in retail and hospitality software intensifies, Lightspeed's strong balance sheet and healthy cash flow open the door for significant, highly accretive M&A-enabling market share gains, expansion into new geographies, and accelerated layered revenue growth beyond organic forecasts in the next several years.

Lightspeed Commerce Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Lightspeed Commerce compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Lightspeed Commerce's revenue will grow by 14.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -61.1% today to 1.8% in 3 years time.
• The bullish analysts expect earnings to reach $29.9 million (and earnings per share of $-0.25) by about September 2028, up from $-681.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 94.6x on those 2028 earnings, up from -2.4x today. This future PE is greater than the current PE for the CA Software industry at 62.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.46%, as per the Simply Wall St company report.

Lightspeed Commerce Future Earnings Per Share Growth

Risks

• Increasing competition from well-capitalized ecosystem players such as Shopify, Square, Clover, and Toast-especially as these peers invest more aggressively in direct sales and expand into Lightspeed's core markets-could constrain Lightspeed Commerce's market share, pressure pricing, and limit revenue growth.
  
• Lightspeed's dependence on third-party partnerships, ongoing integration of acquisitions, and a focus on outbound sales force expansion introduces significant execution risks, which may result in higher operating expenses, delayed synergies, and diluted earnings rather than the anticipated improvement in net margins.
  
• The accelerating trend of large merchants and enterprises building in-house or using proprietary commerce platforms could shrink the addressable market for independent commerce solutions like Lightspeed, thereby capping long-term revenue and ARR expansion.
  
• Persistent macroeconomic uncertainty-including retail and hospitality sector headwinds and inflationary pressures-may dampen customer spending and extend sales cycles, leading to softer new customer additions, slower payments revenue growth, and flat or declining same-store sales, all impacting overall top-line growth.
  
• The commoditization of POS and commerce platform functionality in the industry is likely to drive sustained price competition, which would compress Lightspeed's gross margins and limit its ability to raise prices and expand software ARPU, challenging long-term profitability.

Valuation

• The assumed bullish price target for Lightspeed Commerce is CA$29.25, which represents two standard deviations above the consensus price target of CA$21.28. This valuation is based on what can be assumed as the expectations of Lightspeed Commerce's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$29.91, and the most bearish reporting a price target of just CA$17.94.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $29.9 million, and it would be trading on a PE ratio of 94.6x, assuming you use a discount rate of 7.5%.
• Given the current share price of CA$16.8, the bullish analyst price target of CA$29.25 is 42.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.