Despite its volatility, I expect Lightspeed to outperform in the long run due to its healthy growth prospects and cheaper valuation

Last month, Lightspeed Commerce (LSPD) reported mixed fourth-quarter earnings for fiscal 2023, which ended on March 31. Its revenue came in at $184.2 million, falling short of analysts’ expectations of $184.4 million. However, its adjusted net income was breakeven on a per-share basis compared to analysts’ expectation of a loss of $0.03 per share. Meanwhile, the company’s management withdrew its organic revenue growth guidance amid the uncertain outlook due to falling consumer spending, leading to a sharp decline in its stock price. LSPD stock has lost 8.4% of its value since reporting its fourth-quarter performance.

Amid the pullback, let’s assess whether there is more pain or if investors should start accumulating the stock to earn superior returns. First, let’s look into its fourth-quarter performance in more detail.

Lightspeed’s fourth-quarter performance

During the quarter, Lightspeed’s revenue grew 26% year over year (27% on a constant currency basis). Solid growth of 49% in its transaction-based revenue and 8% growth in its subscription revenue drove its top line. The company’s customers processed $20.2 billion of GTV (gross transactional value) during the quarter, $3.8 billion through payment solutions.

The payment solutions provider introduced several product features during the quarter, which helped to expand its customer base and APRU (average revenue per share). Besides, the company’s customer base is moving towards higher GTV locations, which is encouraging.

Amid the topline growth, the company’s net losses also declined from $114.5 million in the previous year’s quarter to $74.5 million. As a percentage of total revenue, net losses improved from 78.1% to 40.4%. However, removing one-time or special items, adjusted net losses were at $0.4 million, a substantial improvement from a loss of $22.9 million in the previous year’s quarter. Besides, the company closed the quarter with cash and cash equivalents of $800.2 million. So, it is well-positioned to support its growth initiatives.

Lightspeed’s growth prospects

Amid the inflationary environment, consumer spending has declined, impacting Lightspeed’s verticals. So, the company’s management is cautious about its near-term outlook and has withdrawn its earlier stated annual organic growth guidance of 35-40% in the subscription and transaction segments.

However, the company’s long-term growth prospects look solid amid digitization and e-commerce growth. Besides, with the Unified Payments and POS (point-of-sales) launch, the management hopes to build its revenue as more customers adopt its payment solutions. For fiscal 2024, management expects to post revenue of $875-$900 million, with the midpoint representing 20% growth from its previous fiscal. Further, the guidance also projects an improvement in its profitability, with its adjusted EBITDA to break even or come in better.

Bottom line

Although several technology companies have witnessed healthy buying this year, Lightspeed continues to struggle, with its stock price down over 5% for this year. Also, it has lost around 89% of its stock value compared to its all-time high. The steep correction has dragged its valuation down, with its NTM (next 12 months) price-to-sales and price-to-book multiples at 2.3 and 0.8, respectively.

Given the uncertain economic outlook, I expect Lightspeed to remain volatile in the near term. However, if you have a longer investment horizon, you can utilize this steep correction to accumulate the stock to earn superior returns, given its healthy long-term growth prospects.