MONTREAL — Lightspeed’s stock plummeted more than 30 per cent Thursday morning after the company’s second-quarter earnings report failed to reassure investors following a short seller report that raised doubts about its performance.
The stock dropped even though Lightspeed beat analysts’ estimates for both revenue and adjusted loss for the quarter, and after CEO Dax Dasilva offered a fiery rebuke of the short-seller’s allegations. That may in part have been a reaction to the cautious guidance the company offered Thursday as it warned of the impact of global supply-chain issues on its business. Here’s what you need to know:
Talking Points
Lightspeed’s fiscal Q2 earnings report failed to reassure investors that there was nothing to claims that it has mischaracterized some of its key performance metrics.
The big numbers:
- The company reported an adjusted loss of US$0.08 per share in its fiscal second quarter, compared with analysts’ expectations of US$0.09, and revenue of US$133.2 million, compared with estimates of roughly US$124 million, according to FactSet.
- Lightspeed predicted revenue of between US$140 million and US$145 million, and an adjusted loss between US$10 million and US$12 million in the third quarter.
- For the full fiscal year, its guidance was US$520 million to US$535 million in revenue and a loss of between US$40 million and US$45 million.
Coming out swinging: Dasilva used the opening minutes of the Montreal-based company’s earnings call to deny Spruce Point Capital Management’s claims that the company was covering up slowing organic growth through acquisitions, calling them “categorically false.”
Dasilva also pushed back on suggestions the company hasn’t been forthcoming with investors about its key performance metrics, and hasn’t been consistent in its accounting.
“Lightspeed has made a genuine and consistent effort to establish a trusted and transparent relationship with the investor community,” Dasilva said. “We firmly believe that our KPIs allow investors to measure our operating performance and identify trends in our core business that may not otherwise be apparent relying solely on [International Financial Reporting Standards] measures.”
The long and short of it: Lightspeed’s stock on the Toronto Stock Exchange had reached an all-time high of more than $158 in late September before crashing as much as 35 per cent in the immediate aftermath the Sept. 29 report from New York-based Spruce Point, which highlighted what it said were the company’s mischaracterizations about its business.
Spruce Point—which has declined to reveal the size of its short position in Lightspeed—alleged the company had misled investors by overstating key metrics such as total addressable market, average revenue per user and gross transaction volume. It also claimed the company has weak auditing and governance oversight and is hiding muted growth in its payments business—a key part of Lightspeed’s business we’ll go deeper on below.
In recent days, Lightspeed’s stock had been trading around $120, or roughly the same as its value in August. It was trading around $90 just after the market opened on Thursday.
Dax’s take: Dasilva told The Logic on Thursday afternoon that he thought the market reaction was unrelated to Spruce Point’s report. Lightspeed is being extra cautious with its guidance, given supply chain issues that could impact both its customers’ ability to stock merchandise and its own shipments of Lightspeed hardware going into the holiday season, he said.
“We’re conscious that our customers—and in particular, verticals where there’s hard goods—may experience some of the disruptions we’re hearing about,” Dasilva said.
Thanos’s snap: BMO Capital Markets analyst Thanos Moschopoulos, who has issued an outperform rating for Lightspeed, would seem to agree, writing in a research note after Thursday’s earnings that the market reaction to the poor guidance was exaggerated.
“LSPD has a well-established track record of guiding conservatively, and we believe the stock is overreacting to the guidance miss—particularly in light of the revenue beat and strong organic growth in the quarter,” Moschopoulos wrote.
Gotta get paid: Back to payments, this has been one of Lightspeed’s most closely watched business segments as the company takes steps to broaden its product lines beyond physical retail. Lightspeed’s payments product processes card transactions for its customers without the need to rely on a separate service. In an Oct. 31 research note, after the Spruce Point report but ahead of Thursday’s earnings, CIBC analyst Todd Coupland maintained his outperform rating for the stock, which he wrote was based partly on strong adoption for its payments business.
The percentage of Lightspeed’s customer base using its payments offering grew from five to 11 per cent in the quarter, compared to the same period last year, the company said Thursday. Earlier this week Lightspeed announced it had launched its payments business in Australia—it had been the last of the company’s major markets where it hadn’t offered the product—and, on the earnings call, said it expects adoption to increase considerably in markets outside North America.
In recent months Lightspeed has been updating its products to emphasize its offerings in both e-commerce and physical retail and to combine features from companies it has acquired. In late October, it rolled out a new e-commerce product that integrates the features of Ecwid, an online shopping platform it bought earlier this year, with that of its existing products.
In the last quarter, Lightspeed also introduced an updated offering for restaurants that bundles payments, online ordering and data analytics, besides the physical point-of-sale.
The next quarter includes the crucial holiday season, and Lightspeed’s performance will be tied to how the global supply chain holds up, and whether pandemic restrictions will be eased in some key markets, like Australia.
