Lightspeed shares crushed on sales forecast, wiping out more than $5-billion in market cap

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Lightspeed Commerce Inc. stock plummeted more than 27 per cent on Thursday, wiping out more than $5-billion in market capitalization, after the company released a revenue forecast for the next several months that was below what investors were expecting.

The guidance was part of an earnings announcement that featured significant sales growth and above-forecast results for the company’s second fiscal quarter ended Sept. 30. It was also the first extensive public comment for the Montreal-based company since short-seller Spruce Point Capital Management released a critical report on Lightspeed in late September.

Lightspeed is a seller of point-of-sale systems for retailers and restaurants, but has been making a push into e-commerce with a series of expensive acquisitions. Thursday’s decline means Lightspeed stock is down more than 46 per cent from its 52-week high of $165.87, set Sept. 22, a few days before the Spruce Point report. At Thursday’s close of $88.93, Lightspeed shares are still up 85 per cent from their 52-week low set Nov. 5, 2020.

“The short-seller’s report isn’t accurate, and the inaccuracies are things that we’ve addressed today,” Lightspeed chief executive officer Dax Dasilva said in an interview with The Globe and Mail on Thursday. “I think some of the reaction regarding the guidance doesn’t have much to do with with the report.”

Short-selling shares is a bet that shares will drop, with an investor borrowing shares, selling them, and repaying the loan by returning new shares, hopefully bought at a lower price.

Lightspeed said Thursday it expects to record revenue of US$140-million to US$145-million in the current fiscal third quarter, which ends Dec. 31, and revenue of US$520-million to US$535-million for the full fiscal year, which ends in March. It also expects losses in both periods that are larger than analysts’ consensus forecasts, according to Refinitiv.

In a research note on Thursday, analyst Thanos Moschopoulos of BMO Nesbitt Burns said the third-quarter guidance was “slightly below consensus, and implied [fourth-quarter] guidance was a more meaningful miss. Lightspeed 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.”

To explain its guidance for the next several months, Lightspeed, which delivered strong numbers throughout the COVID-19 pandemic, pointed to lockdowns in Australia, where it has 25,000 of its 156,000 customer locations, as well as supply chain issues and the normal seasonality in which January to March is the slowest time for its retail and hospitality customers.

“Our approach is to be conservative,” Mr. Dasilva said in the interview. “There’s things that we can control – there’s levers in our business and drivers in our business that we feel fully in control of – and then there’s the macroeconomic environment.”

Ben Axler, the CEO of Spruce Point, took a victory lap on Thursday morning in a tweet. “This [is] where all the bashers and hate mail I received isn’t replaced with a ‘thanks for the warning.’ ” Mr. Axler declines to say how large its short position in Lightspeed was, or is today, saying regulations do not require it.

Lightspeed reported total revenue for the quarter of US$133.2-million, nearly triple the US$45.5-million in the prior-year quarter. Its net loss of US$59.1-million was more than triple the net loss of US$19.5-million from a year earlier.

The company’s cost-of-goods sold increased at a faster rate than revenue, sharply reducing gross profit margin. The company also reported a sharp increase in the cost to amortize intangible assets. (Companies record costs each quarter to reduce the value of intangible assets, such as trademarks and the value of customer relationships, much like they take depreciation on hard assets such as buildings and equipment.)

Lightspeed uses adjusted EBITDA, or adjusted earnings before interest, taxes, depreciation and amortization, as a profit metric. That figure was a loss of US$8.65-million in the quarter, compared to a loss of US$2.81-million in the prior year. As a percentage of revenue, it edged up to 6.5 per cent from 6.2 per cent.

Coming into Thursday’s report, Lightspeed shares remained expensive – they traded for nearly 47 times the past 12 months of revenue, and 24 times analysts’ forecasts for the next 12 months. The company’s continued losses mean it has no possible earnings-based multiple, like other high-growth companies that emphasize revenue gains over profitability.

“As far as we’re concerned, the results were solid,” analyst Richard Tse of National Bank Financial told The Globe in an e-mailed comment. “I think you just have a stock with a vocal short and in our experience, that will take time to clear. Based on the results and outlook, our investment thesis has not changed. We’d take advantage of a meaningful pullback.”

With reports from Sean Silcoff

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