Lightspeed announces Q2 2022 results

Investment Analysis Clubs Saul’s Investing Discussions
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Second Quarter Financial Highlights
(All comparisons are relative to the three-month period ended September 30, 2020 unless otherwise stated):
• Total revenue of $133.2 million, an increase of 193%
• Subscription revenue of $59.4 million, an increase of 132%
• Transaction-based revenue of $65.0 million, an increase of 320%
• Net Loss of ($59.1) million as compared to a net loss of ($19.5) million. After adjusting for certain items such as
acquisition-related costs and stock based compensation, Adjusted Loss[1] was ($11.1) million, or ($0.08) per
share[1], an improvement to (8.3)% of revenue from (10.1)%
• Adjusted EBITDA[2] loss of $(8.7) million, representing (6.5)% of revenue[1] versus (6.2)%
• At September 30, 2021, Lightspeed had $1.2 billion in unrestricted cash and cash equivalents

Organic subscription and transaction-based revenue growth of 58%
Lightspeed now maintains approximately 156,000 Customer Locations

My quick take-away:

  • Organic revenue growth slowing down from 78% last quarter to 58% now
  • QoQ revenue growth of 14.9% vs 26.5% QoQ growth in same quarter last year
  • Added 6.000 customer locations (150K to 156K), which is 4% QoQ growth and quite low

Stock is down 17% pre-market.

I sold most of my position after the short report and will sell the remainder because of:

  1. The focus on inorganic growth and buying second tier solutions to compete with the market leaders (such as buying Ecwid to compete with Shopify or their restaurant acquisitions to compete with Toast)
  2. Payments business as main growth driver which is low margin
  3. Lack of consistency in their metrics and reporting (as StockNovice had pointed out long before the short report).
  4. Based on Q3 2022 results, slowing growth and the availability of better opportunities in the hypergrowth space

Curious to hear everyones thoughts.

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Couple of additions as I dig deeper:

  • My QoQ comparison might not be entirely representative as last year, the comparative quarter was very weak due to the lockdowns
  • Gross margin continues to decrease due to the growing payments business, and is now 50.1% (vs. 50.7% in Q1 and 61.7% in Q2 last year. Seems like the QoQ decline is small, but most likely explained by slower growth in payments business (see next point)
  • Payments now penetrates 11% of GTV vs. 10% last quarter. At this pace, it will take a decade to get to their 50% target. On a more positive note, they recently announced introduction of payments in several new countries
  • ARPU of 270 vs 230 in Q1, this is very solid growth
  • Adjusted EBITDA margin -6.5%, vs. -6.2% last year
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To me what is very surprising is that they spent $1 billion on acquisitions last quarter and their revenues grew by $17 million. Does anybody understand how that makes any sense?

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This is what I found.

The growth rate of customers is declining.

Examine the press releases carefully and look at the customer locations numbers.

Third Quarter 2021
“Customer locations continued to grow, reaching almost 115,000 globally”

Fourth Quarter and Full Year 2021
“Lightspeed now maintains over 140,000 customer locations”

First Quarter 2022:
“Lightspeed now maintains over 150,000 Customer Locations”

Second Quarter 2022:
“Lightspeed now maintains approximately 156,000 Customer Locations”

The growth rate of the customer locations appears to be declining. Yes, they are increasing the volume of transactions and monetizing existing customers well, but the rate of new customer acquisition is slowing. At least that is what I see here.

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