Doubling Focus On North American Retail And European Hospitality Will Expand Software Offerings

Key Takeaways

• Strategic focus on North American retail and European hospitality aims to drive revenue growth via increased software and payments ARPU.
  
• Transformation and outbound sales, plus tech investments, target margin improvement and expanded software offerings, boosting future revenue and earnings.
  
• Competitive pressures, currency fluctuations, and reliance on transformation strategies could hinder revenue growth due to market and seasonal challenges.

Catalysts

Engages in sale of cloud-based software subscriptions and payments solutions for single and multilocation retailers, restaurants, golf course operators, and other businesses in North America, Europe, the United Kingdom, Australia, New Zealand, and internationally.

• Lightspeed Commerce is doubling its focus on North American retail and European hospitality, leading to increased software and payments ARPU, which is expected to drive significant revenue growth.
  
• The company is undergoing a transformation plan with initiatives targeting pricing, packaging, and cost optimization, which are freeing up resources for reinvestment in growth markets, ultimately improving net margins.
  
• A strategic shift towards outbound sales and enhanced product and technology investments in high-growth industries are designed to expand customer locations and software offerings, contributing to future revenue growth and potentially higher earnings.
  
• Introduction of new product modules and enhancements, such as the Retail Insights and Kitchen Display System, is expected to enhance software revenue growth, supporting revenue and earnings expansion.
  
• The launch of a $400 million share repurchase program demonstrates confidence in the company's future prospects and is likely to lead to improved earnings per share (EPS).

Lightspeed Commerce Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lightspeed Commerce's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -62.0% today to 1.3% in 3 years time.
• Analysts expect earnings to reach $19.2 million (and earnings per share of $0.13) by about July 2028, up from $-667.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $21.9 million in earnings, and the most bearish expecting $16.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 97.1x on those 2028 earnings, up from -2.7x today. This future PE is greater than the current PE for the CA Software industry at 55.0x.
• 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 7.45%, as per the Simply Wall St company report.

Lightspeed Commerce Future Earnings Per Share Growth

Risks

• The strengthening U.S. dollar is putting downward pressure on non-U.S. dollar-denominated revenues, which could impact overall revenue growth.
  
• Same-store sales in retail remain challenged across many verticals, which could affect growth in gross transaction volume and overall revenue.
  
• There is reliance on transforming and scaling the go-to-market motion, which could lead to slower than anticipated growth in new customer acquisition and revenue if changes do not materialize as expected.
  
• Seasonality impacts, especially in highly penetrated verticals like golf, could lead to lower gross payment volume and transaction-based revenues during certain quarters.
  
• Competitive pressures from other players offering similar services or entering the same verticals could affect Lightspeed's market share and potentially impact future revenue growth.

Valuation

• The analysts have a consensus price target of CA$18.547 for Lightspeed Commerce based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$30.01, and the most bearish reporting a price target of just CA$12.83.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $19.2 million, and it would be trading on a PE ratio of 97.1x, assuming you use a discount rate of 7.5%.
• Given the current share price of CA$17.92, the analyst price target of CA$18.55 is 3.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.