LSPD - Not the earnings we wanted

[ethan1234]

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.

Conclusion
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.

-e

[AlwaysLearnin]

Thank you for this concise summary of the LSPD earnings call.

I would like to correct an important (revenue) number.

You reported a $9 million increase in revenue QoQ. In fact the $9 million delta pertains to Q2 Actual vs. Q2 Estimate.

The Q2 Actual vs. Q1 Actual is $133,200 vs. $115,920. This is a QoQ delta of $17,280, and a QoQ growth of 14.9%.

Best regards.

[wsm007]

I’ve done the same and sold.

For me there were two things to look at: 1) Whether the short attack had merit, mainly around the questions they raised about the non-GAAP metrics and 2) how do the actual numbers for the quarter look.

Going into earnings, as I argued before, I was convinced that the short attack was a non-issue. And I had high hopes of a blow-out on the actual numbers.

It seems I was right on the first and wrong on the second.

Management commented on the short attack in the call, and dealt with definitional issues through more comprehensively defining the non-GAAP metrics, mostly on slide 20 of the slide deck and the SEC filing. They did define most of these numbers previously also, but in this release the definitions were clearer.

The results disappointed for all the reasons Ethan stated above. Three further things perhaps worth mentioning which disappointed:

Absolute Revenue increase looked like this for the last 5 quarters (oldest to newest):

$9.3m → $12.1m → $24.8m → $33.5m → $17.1m

So absolute revenue growth (unadjusted i.e. incl acquisitions) halved from what it was a quarter ago.

Gross margin has decreased from 69% in Q2 two years ago to just 50% now, down further from the 51% of last quarter, fuelled by the ever-increasing size of payment revenue of the total. In Q2 2020 56% of revenue was subscription revenue; in Q2 of 2021 this was only 44%. So even though ARPU increased, the margin on that ARPU eroded a lot and will likely continue to decrease, as per their guidance. I was hoping that revenue would have increased by a lot more to make up for this.

EBITDA margin decreased to -6.5% this Q from -5.2% last Q. During last quarter, it looked like they may have a path to some operating leverage as EBITDA margin improved a lot from -11.2% two quarters ago, yet now it has again gone the wrong way.

So I’m out, and it hurt.

-WSM

[hyperion641977]

I’m out too.

In addition to the above, I have done systems integrations before and with all their concurrency acquisitions, it’s going to take a few quarters to integrate into one cohesive platform and product set. I liken it to AYX and its cloud migration. It’s hard enough to do one integration, but four? I feel like this will take a few quarters to get to a cohesive and unified platform and product suite.

[ExponentialDave]

Ouch. I sold too. Basically it looks like they had a “covid quarter” during a quarter which I thought would be another blowout.

Gonna repeat some stuff which has already been said:

Organic growth QoQ of 8.4% is much worse than organic sequential growth we saw in Q2 of 27.9%.

Organic YoY 39% growth of GTV is much weaker than organic YoY growth of 90% that it saw in Q2 of 2021.

The companies in my portfolio are all growing at a minimum of 52% YoY organically (the worst is Cloudflare by this metric). 58% YoY organic growth is not bad. The problem is that we are comparing off of covid suppressed numbers. So what will revenue growth be next year when we are no longer comparing against covid lows? Probably something that will be worse than any company in my portfolio, possibly much worse.

It always sucks to take a hit. But unfortunately I think this was the right move.

[RafesUserName]

I sold out too. Just too complicated right now. It hurts to sell in to a 29% down-day when it could arguably be over-sold due to the combination of less than idea quarter and a perfectly timed short-seller attack (I saw at 4(!!) articles and lawsuit reminders appear this morning at Yahoo). I just try and avoid playing “the game”. There have been subtle signs that this management team may not be real experienced, or at least able to appear business savvy as a unit. I’m just going to add this “smell” to the numbers and the complexity and step aside for now.

I still like how well they seem to integrate acquisitions and refine their products. I think the product and marketing side knows their customer and segment and is doing a good job of targeting them while also providing fuller features to compete with Shopify for some overlap in customer base. I’m certainly going to be watching to see how this storm progresses. I might miss out on some upside, but I took the opportunity to open a small starter position in Affirm (~3.5%), spread a little around and roll about half over to Monday.com, which was still a bit smaller than I wanted, and is now just under a 12% position.

The standard disclaimer applies: I’m just taking what incomplete information I have ingested to make a personal decision. I may be wrong. Time will tell. I can always change my mind.

[LifeOfDreamer]

Ethan,
Well thought out response as usual. Respectfully disagree though.
Perhaps some of the recent numbers from some of the other hypergrowth stocks are making 58% seem paltry, not sure.

LSPD is now a 20 forward P/S stock for current FY, with only 2 Qs left.
Forecasting about $550m rev against a $10b mkt cap.
Major acquisitions just completed have yet to be materially impactful in the new combined entity.
Supply chain issues are artificial and temporary.

And while much of country is reopened, I don’t think we are quite at back-to-normal situations for hotels and other impacted businesses. Expect they continue to see improvement organically on that front, too.

58% ORGANIC GROWTH!

This screams easy bounce-back buy to me.
So I bought more at $68.

Dreamer

[WillO2028]

Lightspeed reported at 5am my time. The report was very disappointing on nearly every metric. But all I needed to see was the following:
Total Revenue:
$9.3m → $12.1m → $24.8m → $33.5m → $17.1m
Gross margin, what had kept me out until recently, **-> just 50%**down further from the 51% of last quarter.
Worse, IMO, of all was the decrease in growth of customer adds from: Q3FY21 to Q4FY21 +35,000Q4FY21 to Q1FY22 +10,000; Q1FY22 to Q2FY22 ->+6,000. This deceleration in growth is not in my investment thesis during what was supposed to be the early phase of Lightspeeds adoption..
I used the money to purchase more of nearly every other position I hold.
Mostly Upstart and ZoomInfo.
So then there was 8

Best,

Jason

[qazulight]

It always sucks to take a hit. But unfortunately I think this was the right move.

I am struggling with this.

Soon I will have to choose where to put my money. If I assume that Light Speed management is still a good team, that they have not been lying and they are executing, it would follow that they are having difficulty due to supply chain issues and that those issues will he resolved.

As such we should see Light Speed return to its former growth rate. If this is the case we should see Light Speed recover to its recent highs in a year or so.

That brings up the question, where will I deploy the Light Speed money that I have confidence it will grow at 50
percent in a year?

“Nobody cares what you paid for it” I read a long and thoughtful article about stocks many years
ago. They fact that a stock has dropped in value by 1/3 does not change what it is worth today. The 1/3 is lost. It is lost if I continue to hold the stock, it is lost if I sell it and by another, it lost if I sell it and take a cruise. What I need to know is would I buy this company at this
price today?

Someone mentioned that the growth in customers was terrible. It was like 3 organically. This alone would
place Light Speed outside the realm of what we are trying to invest in and would be an excellent reason to remove it
from the portfolio today.

Other that this, Looking at “Which companies can I invest in to maximize my profits” Light Speed

Looking at my portfolio,

I am over weight by double in Upstart. Probable not there.

Cloudflare is awesome, overweight there.

Crowdstrike could use some more,
but I am not convinced it is a 50 percent in year company.

Zscaler could use more, but the same, 50 percent from here?

Palitar has been a disappointment and the 0.5 percent stake is probably history.

Monday is small and has actually grown to an uncomfortably large full position.

Zoominfo might be a place.

Data Dog is a solid company, but 50 percent in 12 months?

I will sit and look at this some more.

Cheers
Qazulight

[Pavlos21]

That brings up the question, where will I deploy the Light Speed money that I have confidence it will grow at 50 percent in a year?

Qazulight,

I think the question we ought to ask ourselves is not which company will grow in a year but which company/team is executing/growing today.

There are several companies that reported better-than-expected earnings. DDOG, BILL, CFLT, just to name a few.

The market doesn’t get excited when companies deliver what is expected. Be it 50% or 100% (see SNOW). The real excitement comes from acceleration in growth. A 30% grower moving into 50% territory will bring a lot more excitement than a 100% grower that slows down to 75%.

Of course, 50% growth is super for any company as long as they can keep growing for years to come (see NET). However, LSPD was priced and expected to be an 80-90% (organically) grower.

There are many companies who face logistic/supply chain issues but our purpose is to avoid them especially when management says that it will take a couple of Qs to clear or even worse when they are unclear as to what the impact is/will be and for how long.

Personally, I sold out of LSPD after the earnings. That organic growth in the high 50s% got me by surprise. After reading the entire report and listening to the call, I tried to think about it with the same logic as you explained above. Dax tried to be excited and mentioned being excited about the future. But we are not in the future. We are here now. So, I couldn’t stay invested in a somewhat complicated story that didn’t deliver, so I moved the funds elsewhere (UPST even though overweight).

The market doesn’t care about my allocation. It can’t say oh Pavlos is not overweight on a single stock, he’s nicely diversified so let’s be good with his holdings, and let’s not kick LSPD in the butt for not delivering. If UPST doesn’t deliver a bit over what’s expected next week I wouldn’t hesitate to trim/sell out if needed. The good thing about managing our own portfolio is that we get to choose what’s going in it. We keep/promote those who deliver and fire those who don’t. As simple as that.

[Robworldwide]

Hi Qaz

A thoughtful discourse on what to do with the funds to be sure. I like to have a few trial positions on the go, often less than 1% of portfolio which have gotten through my screen for growth and perhaps are setting up for earnings. AMPL, GLBE, and PLTR are my current watch list in that regard.

I think there may be tailwinds in the offing for PLTR in particular given the government spending in the offing, and I believe their growth is poised to (finally) accelerate.

AMPL has been written up recently by PaulWBryant (and some earlier contributions from InvestorMookie and Runnerguy) and are guiding for mid 60% growth (with my expectation that they will actually show 70%+) when they release their first earnings next week. They published their results even though a private company in Q2 with a diversified customer base (1280 customers, up 51% y/y and about a quarter were large spend > $100k) an NRR accelerating (119% vs. 118%). I’ll be watching closely their RPO which last quarter was reported to be $116.9M.

GLBE was mentioned already this morning on another post - we’ll see what earnings show next week.

RWW

[qazulight]

I think the question we ought to ask ourselves is not which company will grow in a year but which company/team is executing/growing today.

Pavlos,

Great response thanks.

First “Its that simple” best line ever from Boston Legal. You would get a rec from me just for that.

Growing today, not in a year, is probably very important. Saul, has sold out of some very good companies who’s (whose?) stock
price and business has done very well, I am thinking of Shopify.

I am probably over thinking it, but this whole investment thing seems like a three body problem.

https://en.m.wikipedia.org/wiki/Three-body_problem

We can tell where the next short step will be, but the confidence drops to an infinitesimally small number fairly quickly in the future. I am beginning to see what I might do.

https://music.youtube.com/watch?v=2wmyjGrN7M0&feature=sh…

There must be 50 ways to leave your lover.

Thanks
Qazulight

[n8larson]

Combo-reply to a couple of recent items in this thread:

If I assume that Light Speed management is still a good team, that they have not been lying and they are executing, it would follow that they are having difficulty due to supply chain issues and that those issues will he resolved. As such we should see Light Speed return to its former growth rate. If this is the case we should see Light Speed recover to its recent highs in a year or so. [Emphasis mine]

First, a minor point is that we don’t know when supply chain issues for various companies impacted will be resolved, and it’ll be a drawn-out process that will show up in (a) company results gradually and (b) different industries at different times. Second, to the part I bolded, it doesn’t necessarily follow that ‘return to former growth rate = return to former stock price’. It’s been a while since I put a lot of stock in PEG ratio, as it doesn’t seem to me to apply well at all to small growing tech companies (especially those with no “E”), but there are other metrics one could use. I won’t dive into those here and now because the general point is that the market, as somewhat evidenced by the sentiments on LSPD expressed on this board, will have moved on to the Next Shiny Thing in small exciting growth stocks. A lot of people are ‘licking wounds’, as one put it, and have learned not to trust a company with alleged accounting malfeasance in its past (short report) and heightened relative downside risk on the supply chain front. A lower ‘resting multiple’ seems likely to follow. And, even after saying all that, I’ve held.

[from a different excellent post]
where will I deploy the Light Speed money that I have confidence it will grow at 50 percent in a year?
I think the question we ought to ask ourselves is not which company will grow in a year but which company/team is executing/growing today. [Emphasis original]

I think they might be the same question. “Which company will grow in a year” means “which company will have grown in a year” or “which company will grow over the coming year”. There’s no such thing as “growing right now” semantically because growth is a comparison of something at two points in time. It can only be known definitively if neither of those points is in the future. If I was misreading and the question Pavlos was getting at was “which company has grown well recently”, then I disagree–the primary question I ask myself is about how, how fast, and how well it’s going to grow, not about where the company is now. Simple Wayne Gretzky ‘skate to where the puck is going to be’ stuff.

I do have an opinion on the overall question, though: this week/month, as I transition my big SHOP position to more pure SaaS, I’m going with Amplitude (opened today) and DataDog, not Global-E or Affirm. I might also build Monday.com up a bit. I’m holding tight on the Ad stocks (Magnite and Trade Desk) as well as DocuSign and Roku for now (longer view on those guys).

-n8 (rest of holdings at profile, including some more conservative ones)

[Tamhas]

There’s no such thing as “growing right now” semantically because growth is a comparison of something at two points in time.

While you have point, one can certainly define growth as the change between point A and point B, separated by a year or a quarter or whatever, and then graph a curve of the value of that change over time, using historical figures to the left and projected figures to the right. One could then point to any point on that line and if the value at that point is greater than 1.0, then say that the company is growing at that point in time.