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.

Event Update: The group reported that it would disclose the third quarter FY21 results on February 04, 2021.

Key Highlights:

• Launch of Supplier Network:  Recently, the group launched a fully integrated stock ordering solution (Supplier Network) dedicated to the Small and Medium Businesses (SMBs). The above service would provide the suppliers with improved transparency of the shipments and is expected to shorten the receiving cycle and would provide easy import workflow for retailers which can be operated through a single platform. We believe, the above service would integrate between businesses and brands, and would provide unprecedented visibility of goods sold by independent merchants.
• Bullish Price Trend: The stock of LSPD gained handsomely in the recent past and appreciated ~160% and ~337%in the last six months and nine months, respectively. Moreover, the stock closed above the long-term simple moving averages (SMA) of 100-days, 150-days and 200-days, indicating a bullish trend.

Q2FY21 Financial Highlights:

• LSPD declared its second quarter FY21 results, wherein the company posted total revenue of USD 45.493 million, significantly higher from USD 28.026 million in the previous corresponding period (pcp). The increase was driven by strong momentum from Software and payments segment combined with the positive impact from acquisitions.
• Gross profit stood higher at USD 27.505 million, higher than USD 19.377 million in Q2FY20, thanks to higher revenue, partially offset by higher direct cost of revenues (USD 17.988 million versus USD 8.649 million in pcp).
• Operating loss widened to USD 20.646 million from USD 11.229 million Q2FY20, due to an increase in sales and marketing expense (USD 19.399 million versus USD 13.356 million in pcp), higher amortization of intangibles (USD 4.404 million versus USD 1.800 million in pcp) and higher research and development expenses (USD 12.252 million versus USD 7.561 million in pcp).
• Net Loss stood at USD 19.466 million, as compared to USD 10.075 million in the previous corresponding period.
• Cash and cash equivalents stood at USD 513.135 million, while total assets recorded at USD 782.018 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Further breakout of COVID-19 would result in heightened levels of churn owing to business failures, requests for subscription pauses and delayed purchase decisions; disruption in attracting and retaining customers; delay in implementing the growth strategy and supply chain disruption.

Stock Recommendation:

The group has acquired ShopKeep at an estimated consideration of ~USD 440 million. The combined entity would have more than 100K customer locations across the globe and would enhance the group’s average revenue per user ARPU in the foreseeable future with additional Lightspeed modules and capabilities. Moreover, a major chunk of the revenues comes from the Recurring Software and payments segments, which augurs well for stable top-line. Hence, considering the aforesaid facts, price appreciation and trading levels, we give a ‘Hold’ sating on the stock of LSPD at the current closing price of CAD 88.16 on January 25, 2021.

LSPD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Docebo Inc

Docebo Inc (TSX: DCBO) offers a cloud-based learning platform for internal and external enterprise learning with real-time tracking of training results, optimizing time, and reducing costs associated with traditional learning methods.

Key highlights

Robust preliminary numbers of Q4 2020: On January 20, 2021, the management shared the preliminary numbers for Q4 2020, where they expect to achieve growth on many fronts.

• Revenue is expected to be in a range of USD 18.25 - USD 18.75 million in Q4 2020, an increase of 48% to 52% compared to USD 12.3 million in Q4 2019.
• Annual Recurring Revenue (ARR) is expected to be between USD 73 and USD 74 million as at December 31, 2020, an increase of 55% to 57% compared to USD47.2 million as at December 31, 2019
• Average Contract Value (ACV) is expected to be between USD 33,500 to USD 33,950 as at December 31, 2020, compared to approximate USD 27,362 as at December 31, 2019.

Announced pricing of Secondary Public Offering: Recently, the company announced the pricing of USD 49.67 per share for aggregate gross proceeds of USD100 million for 2,013,288 common shares. The offering is expected to close on January 26, 2021, subject to customary closing conditions.

Successfully executing growth strategy: The management took some prudent steps to increase the total number of customers with a healthy contract value. The company holds a mark of 76% in Q3 2020 by the customers who chooses multi-year contracts and ACR stood at USD 31,900, the highest in the last five years history. Recently, the group signed a new customer agreement with Amazon Web Services ("AWS") to power its training and certification products across the globe, along with an expansion agreement with Syngenta Group, the world's largest agrochemical company.

Source: Company

Financial overview of Q3 2020 (expressed in thousands of United States dollars)

Source: Company

• In Q3 2020 the company reported a healthy growth of 52% in revenue at USD 16 million, against USD 10.59 million in the previous corresponding period. The rise in revenue was primarily due to higher subscription revenue which increased by 54.1% against Q3 2019.

• Gross profit stood at USD 13.2 million in Q3 2020, compared to USD 8.4 million in Q3 2019. Gross profit increased primarily due to higher revenue and lower cost of sales, which improved by 200 basis points.

• The company brought down its operating losses at USD 0.65 million in Q3 2020, compared to a loss of USD 3 million in the previous corresponding period, the group witnessed higher G&A expenses, R&D expenses, share-based expenses and foreign exchange loss in the reported quarter.

• Net loss stood at USD 1.16 million, compared to USD 3.7 million in Q3 2020. Higher revenues and lower cost of sales helped the company to minimize its net losses.

Risks associated with investment

The company earns a significant portion of revenue from a subscription base. If the customers decide to discontinue their subscription or the company fails to attract more healthy customers, it might affect the group’s financial performance. 

Stock recommendation

The company has shown some healthy number in Q3 2020, where they grew its revenue by 52% to USD 16.1 million. The subscription revenue increased by 54.1% to USD 15.1 million, representing 93.8% of total revenue, and minimized the net losses. Recently the group signed a new customer agreement with Amazon Web Services ("AWS") to power its training and certification products across the globe, along with an expansion agreement with Syngenta Group, the world's largest agrochemical company. The management has shared its preliminary numbers for Q4 2020. It expects some robust set of numbers on all parameters. Revenue is expected to be in a range of USD18.25 - USD18.75 million with a growth of 48%-52% and Annual Recurring Revenue (ARR) is likely to be between USD73 and USD74 million. On the valuation front, the stock is available at forward Price/Book Value multiple of 8.3x against the Industry (Technology) mean of 10.4x. Hence, considering the aforesaid rationale, we recommend a "Hold" rating in the stock at the closing price of CAD 68.07 on January 25, 2021.

Source: Refinitiv (Thomson Reuters)

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