Shopify Inc.

Shopify Inc. (TSX: SHOP) offers an e-commerce platform primarily to small and midsize businesses and operates through two segments, namely subscription solutions and merchant solutions. 

Key Highlights:

• Favorable Industry-dynamics resulted in Consistent Growth: The company reported strong operational growth supported by tremendous growth in Subscription and Merchant Solutions revenue over the years. During FY20, Gross Merchandise Volume (GMV) surged 96% over FY19, which is a key positive. During FY16 to FY20, revenue grew from USD 389.3 million to USD 2,929.5 million, which is worth mentioning.

Source: Company Reports

• Higher Operational Efficiency led to Improved Profitability: Over the years, the company has focused on disciplined cost management in order to enhance its profitability. SHOP has successfully lowered its input costs, which have resulted in growth in Adjusted Gross Profit, which is a key positive. 

Source: Company Presentation

Q4FY20 Financial Highlights:

• SHOP announced its quarterly result, wherein the company posted revenues of USD 977.744 million, significantly higher than USD 505.160 million in the previous corresponding period (pcp). The increase was primarily attributable to an exuberant growth from both segments due to change in consumer preferences and increase in entrepreneurship etc.
• Gross profit surged to USD 504.388 million, from USD 263.891 million in pcp, thanks to the higher revenue, partially offset by a higher cost of revenues.
• Income from operations stood at USD 112.541 million v/s a loss of USD 30.079 million in Q4FY19. Total operating expenses was higher at USD 391.847 million v/s USD 293.970 million in pcp.
• Net income was recorded at USD 123.872 million v/s USD 0.771 million in pcp.
• Cash and cash equivalents surged to USD 2,703.597 million from USD 649.916 million in FY19.

Q4FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s operations might be hindered due to the entry of new player within the industry with innovative product offerings along with advanced technology services. Moreover, the company is witnessing an increment in research and development expense in order to stay competitive in the industry, which might put a pressure on the operating margin.

Stock Recommendation:

The company provides a Multichannel commerce platform that enables merchants of all sizes to sell their products to consumers across the major locations. During FY20, the operations witnessed strong growth supported by healthy GMV traction and new merchants’ addition on the platform, which increased adoption of merchant solutions. Cash from operations grew significantly to USD 424.958 million in FY20, from USD 70.615 million in FY19. The company is investing in long-term growth prospects and looking for International Expansion and the introduction of Retail POS etc. The Management highlighted that the growth in the Merchant solutions is likely to be continue in the coming years driven by continued GMV growth from existing merchants, new merchants joining along with the expanded adoption of Shopify’s growing menu of merchant solutions like Shopify Payments, Shopify Shipping, and Shopify Capital across the major geographies. The stock of SHOP made a remarkable return of ~162.37% in the last one year, supported by strong operational performance. Hence, considering the aforesaid facts, recent price movements, we give a ‘Hold’ rating on the stock at the closing price of CAD 1,462.12 on April 07, 2021.

One-year Price Chart (as on April 07, 2021). Source: Refinitiv (Thomson Reuters)

Lightspeed POS Inc.

Lightspeed POS Inc. (TSX: LSPD) provides an omni-channel commerce-enabling SaaS platform. Its software platform provides customers with the functionality it needs to engage with consumers, manages their operations, accepts payments, and grow their business.

Key Highlights:

• Balanced Portfolio: The company has its presence globally with a leadership position in the North America. On the geographic front, ~59% of the revenue comes from North America, ~41% from Europe and remaining from rest of the world. This shows diversified business of the company across the nations and hence do not dependent on one geography. However, on the business front, the group derives 48% revenue from the retail segment, while restaurant/hospitality contributes the rest 52%.

Segment Highlights (Source: Company Report)

• Impressive Growth Profile: The company witnessed a strong momentum within the Gross Transaction Volume (GTV) and Total Customers location in the last few years, supported by a change in consumer preference and customer’s inclination towards the ecommerce segment. Moreover, the group has enhanced its presence across diversified locations, which also fueled the overall demand dynamics and is a key positive.

Source: Company Presentation

• New Acquisition: Recently, the company reported the acquisition of VendLimited, a cloud-based retail management software company. This would strengthen the company’s global retail footprint and bolsters the company’s presence within the premier omnichannel retail category. The company announced that it would provide a Seamless Onboarding Option for Vend’s Global Client List of more than 20,000 Customer Locations Worldwide.

Q3FY21 Financial Highlights:

• LSPD declared its quarterly result, wherein the company reported total revenue of USD 57.611 million, surged 78.5% from the previous corresponding period (pcp). The increase was primarily aided by strong performance within the Software and payments segment (USD 52.529 million versus USD 28.354 million).
• Gross profit was reported at USD 33.277 million, v/s USD 21.584 million in Q3FY20, thanks to elevated revenue, partially offset by a significantly higher direct cost of revenues (USD 24.334 million versus USD 10.691 million in pcp).
• Operating loss widened to USD 44.609 million from USD 16.448 million due to higher sales and marketing expense (USD 28.011 million v/s USD 16.709 million in Q3FY20), increase in amortization of intangibles (USD 7.960 million v/s USD 2.154 million in pcp) coupled with higher research and development expenses (USD 16.400 million v/s USD 8.344 million in pcp).
• Net Loss widened to USD 42.651 million, from a loss of USD 15.762 million in Q3FY20.
• Cash and cash equivalents were recorded at USD 232.646 million, while total assets stood at USD 1,546.723 million.

Q3FY21 Financial highlights (Source: Company Reports)

Risks: In order to remain afloat, the product and services seek constant innovation and upgradation and led to higher research and development expenses. This could put pressure on operating margins which are already negative.  At the end of Q3FY21, the company’s total debt surged by  ~21%  on a q-o-q basis to USD 55.6 million v/s 46.0 million in Q2 FY21, which might hinder the financial flexibility of the group.

Stock Recommendations:

In the recent past, the company expanded the availability of Lightspeed Payments across the United Kingdom, and other parts of Europe. We believe the above would fulfil the growing needs of payment services for small and medium-sized businesses in the hospitality industry due to the rising trend of contactless payment. The recent API Integration with VendLimited would likely to accelerate Loop’s Growth within the USD 23 trillion Global Retail Market, along with the access to over 155,000 Global Retail Clients. The stock of LSPD witnessed handsome gains in the recent past, and it soared more than four-fold in the last one year. Considering the aforesaid facts, we suggest a ‘Hold’ recommendation on the stock of LSPD at the closing price of CAD 86.15 on April 07, 2021.

One-Year Price Chart (as on April 7, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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