LSPD - Not the earnings report I hoped for.
Lightspeed reports and turned in a relatively hohum 133.2 million quarter which was the absolute low end of my expectations and only 9 million more than last quarter
Here is a quick recap of what drives revenue at LSPD. Customers, payment penetration and sales. We can track sales by their reported GTV(GMV) which is customers * sales. Customers pay LSPD in two ways. Subscription costs for software modules and then a percentage of GTV based on payment penetration.
You will see that I’m comparing quarters sequentially for the most part. YoY comparisons I find to be less helpful for LSPD since last year was so affected by covid and they have so many acquisitions.
So let’s take those one by one and why I was very disappointed in this quarter.
1)Customers - LSPD reported 156k customer locations (not customers). Last quarter they reported 150k, so they only added 6k customer locations but it was actually worse than that because their NuOrder acquisition brought 3k customer locations.
2)Payment penetration - Last quarter payment penetration was 10%, this quarter it was up to 11%. This means that for each dollar of GMV they get 11 cents this quarter compared to 10 cents last quarter. This met my expectations. LSPD said that payment penetration was 20% already in North America. In the past LSPD has told us that they expect to get to 50% payment penetration.
3)GMV - This quarter’s GMV was 18.8 billion vs 16.3 billion. On the face of it this number is better than I expected given the ho-hum sequential revenue growth. I suspect that a good part of the increase can be attributed to the NuOrder acquisition which according to LSPD did 11.5 billion of GMV last year. So i suspect that GMV actually decreased compared to last quarter.
We have a situation where LSPD sounds very uncertain about Q4 due to supply constraints for their merchants. Q4 is normally their largest quarter on the commerce side and then we go into Q1 which is historically their slowest quarter on top of the general market weakness. So likely we have AT LEAST two weak quarters. That wouldn’t bother me if the customer locations number was strong but only adding 3k customer locations was very weak. With the visibility we have today LSPD looks like a 50%ish organic grower while it laps the COVID quarters and then that number will drop ALOT since GMV growth will moderate and payment penetration impact will slow because of math AND customer location growth was marginal at best. Also remember going from 10% penetration to 11% is a ten percent increase in transactional revenue. Going from 19% to 20% is only about a five percent increase AND as payment penetration increases each additional customers will likely be harder to get to switch.
On the positive side LSPD has a lot of exciting products coming with their supply network, new commerce platform, hospitality platform, supplier network, data analytics, and capital program as well as payments being available to almost all of their customers at this point. However all that is a , “maybe” which I would love to stick around for if the rest of the business was doing better. But it isn’t.
Overall I’m disappointed in this earnings and I don’t expect q4 or q1 will be any better. Their new products aren’t out yet. I’ve sold the vast majority of my position but I’ll reevaluate if their growth drivers can kick into gear.