Lightspeed shares plummet on weak revenue numbers despite company surpassing third-quarter goals

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Lightspeed Commerce Inc.’s LSPD-T stock plummeted Thursday over concerns about its revenue growth, even as the company reported better-than-forecast results.

The Montreal commerce software vendor’s shares fell 24.4 per cent after the company said it generated US$239.7-million in revenue during the third quarter ended Dec. 31, above its previously forecast range of US$232-million to US$237-million, and up 27 per cent from a year earlier.

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The market response underscores the challenges unprofitable software companies continue to have amid an ongoing sector slump, as they juggle twin investor demands: to grow briskly but not lose money.

For a straight second quarter, Lightspeed, one of Canada’s largest publicly traded tech companies, hit a key target: positive earnings before interest, taxes depreciation and amortization and further adjustments for items including share-based compensation and related payroll taxes. The measure, called “adjusted EBITDA,” is not a recognized accounting standard, but Lightspeed has said it will achieve at least break-even results by that measure this year.

Lightspeed made US$3.6-million in adjusted EBITDA in the quarter, above its $2-million prediction. Its net loss was US$40.2-million. The company also slightly improved its revenue forecast for the year to between US$895-million and US$905-million.

“Lightspeed continued to deliver on its key objectives,” said chief executive Jean Paul Chauvet on a conference call, including deriving 29 per cent of transaction volumes through its platform from payments collected by customers. That’s up from 25 per cent a quarter ago and on track to surpass a goal of 30 per cent this fiscal year and 40 per cent next year, he said.

Lightspeed last year made it mandatory for new customers – retailers, restaurants, golf courses and hospitality providers that use its software to handle point-of-sale transactions – to use its payment processing product. It began charging fees to existing clients who use an alternative.

However, there are many moving parts underlying Lightspeed’s business that appear to be spooking investors. The company has shifted its focus away from serving customers that generate less than US$200,000 in revenues. They account for 5 per cent of its transaction volumes and generate lower revenues per account than those with US$500,000 or more in revenues, where the company is focusing its efforts.

While Lightspeed didn’t provide absolute numbers, chief financial officer Asha Bakshani said those smaller customers accounted for 30 per cent of total locations served, down from 46 per cent in September, 2022. While revenue from customers with US$500,000-plus in revenue is expected to offset that decline, growth in that larger category was just 7 per cent in the third quarter, compared with 25 per cent five quarters earlier.

That churn left Lightspeed with subscription revenues of US$80.9-million in the quarter, up 9 per cent year-over-year but unchanged from the second quarter. The value of transactions handled over its platform increased by just 3 per cent year-over-year, to US$23.1-billion, which management blamed in part on soft holiday spending in the U.S.

Mr. Chauvet said Lightspeed would focus on growing revenues and keep its adjusted EBITDA goal, “but I want to stress that growth will be our top priority.” He added “it is very clear” Lightspeed must focus on growing transaction volumes and large-client counts.

Lightspeed is starting to direct sales people from converting existing clients to payments – their main focus this past year – to selling them software offerings such as ecommerce and analytics reporting, and pursuing new clients: “Now is the time for us to keep our foot on the gas,” Mr. Chauvet said.

But he warned added spending on sales will take months to beget revenues. That will cut into margins in the first half of the next fiscal year “while adding uncertainty for its eventual conversion into location growth,” said Richard Tse, a National Bank of Canada Financial Markets analyst who cut his stock price target to US$20 from US$25 and rating to “Sector Perform” from “Outperform.”

Mr. Chauvet also said Lightspeed might start buying companies again, nearly three years after its last deal. Lightspeed made nine acquisitions the first 30 months after going public in early 2019: “M&A is in this company’s DNA, and I believe our track record demonstrates that we know how to successful identify, execute and integrate meaningful acquisitions,” he said.

In an interview, Mr. Chauvet said he wanted to add work force management functions, including payroll and employee scheduling, and that the company would determine whether it made more sense to build the programs or buy or partner with a supplier. He added “there’s no time frame” for doing deals and that Lightspeed was not actively looking at one.

Lightspeed stock has lost more than 85 per cent of its peak value since 2021 after it was hit by a critical report from short seller Spruce Point Management and technology stocks slumped. The company remains in a strong financial position, with $749-million in cash and equivalents, down $12-million over the quarter.