Lightspeed announced Thursday it is buying New York-based cloud commerce platform ShopKeep for US$440 million. It’s the Montreal-based point-of-sale firm’s largest acquisition to date and marks a major push into the U.S. market, adding over 20,000 customers to Lightspeed’s stable of more than 80,000 worldwide.
The announcement headlined Lightspeed’s earnings day, on which it reported US$45.5 million in revenue for the quarter ended September 30, a 62 per cent year-over-year increase. That’s ahead of the 51 per cent year-over-year increase it posted last quarter and more than 10 per cent above what both analysts and the firm’s own guidance predicted. But revenue doesn’t tell the whole story of Lightspeed’s strong quarter, or explain why the company’s stock was up around 12 per cent in early afternoon trading. Here’s what you need to know:
Talking Point
Montreal-based Lightspeed beat analyst expectations and its own guidance this quarter. Now it’s deepening its U.S. presence, with its US$440-million acquisition of ShopKeep and stepping up spending on R&D and sales and marketing with the goal of furthering its growth.
Acquisitions are driving Lightspeed’s growth: The firm’s gross transaction volume (GTV) went up 56 per cent to hit US$8.5 billion, though that increase was only 25 per cent when excluding two recent acquisitions. Lightspeed expects its acquisition of ShopKeep to increase its GTV. In an interview with The Logic last year, CEO Dax Dasilva outlined plans for a rapid expansion in Europe, Africa and Asia-Pacific. “Our understanding is that ShopKeep’s offering is somewhere above Square’s POS with respect to features/functionality, but below LSPD’s,” BMO Capital Markets analyst Thanos Moschopoulos wrote in a note to clients Thursday. “We believe LSPD is primarily buying a customer base, and added scale, rather than technology.” Lightspeed paid a nine-times sales multiple for ShopKeep, in line with what it’s spent on other recent acquisitions, according to an analyst note from Eight Capital. This U.S. push may not be the firm’s last. It reported having US$513.1 million in cash on hand, which it could use to make more acquisitions—especially considering it only used US$145.2 million to purchase ShopKeep, issuing new shares for the balance of the transaction.
The pandemic isn’t slowing the company down: Lightspeed’s stock fell by nearly two-thirds in March as global equities dropped on concerns about the pandemic. At the time, The Logic reported that the firm, whose restaurant and retailer clients have been hard hit during the pandemic, would likely weather the crisis just fine. Thursday’s quarterly results show that is what’s happening. Its churn is down from the first quarter, and results from bike and golf retailers were strong. “The pandemic seems to be driving accelerated adoption of Lightspeed’s platform by SMBs who are migrating off of legacy solutions,” wrote Moschopoulos. Overall, the firm’s gross new customer locations jumped 68 per cent year over year and increased 26 per cent from the firm’s first fiscal quarter.
Software sales remain key: Recurring software and payments revenue made up over 90 per cent of Lightspeed’s overall income, at US$41.1 million. While Lightspeed doesn’t provide a breakdown for how much of that was just payments, PI Financial head of research Gus Papageorgiou estimated in March that it was about seven per cent of Lightspeed’s revenue. Payment volumes rose this quarter, and the division’s revenue was up 300 per cent.
Impact of new products unclear: In late August, Lightspeed launched an e-commerce theme designed to help restaurants sell more during the pandemic. On September 30, the last day of its quarter, the firm released an online ordering tool for restaurants looking to sell takeout and delivery food. The firm didn’t break out revenue from either initiative, but CEO Dax Dasilva highlighted new products in its release Thursday: “Our focus on quickly delivering products to help our merchants respond to evolving consumer behavior has been an innovation multiplier.” Additional products may be coming down the line. The firm spent US$12.3 million on research and development this quarter, up from US$7.6 million a year ago.
Costs remain high: Lightspeed recorded a US$0.20 net loss per share, a deeper loss from the US$0.12 it recorded last year. Total operating expenses hit US$48.2 million, a 12 per cent quarter-over-quarter increase and a 57 per cent year-over-year jump. In addition to the R&D increase, much of the spend came from sales and marketing, which hit US$19.4 million, compared with US$13.4 million last year. Both R&D and sales and marketing spending will continue to rise due to the ShopKeep acquisition to capitalize on increased demand, according to a release from the company.
What’s next: The firm pulled its full-year guidance earlier in the pandemic and did not reinstate it Thursday. Lightspeed did offer estimates for its next quarter: revenue between US$44 million and US$47 million, as well as an adjusted loss before interest, taxes, depreciation and amortization of between US$8 million and US$10 million.
With files from Murad Hemmadi
