A 55-Slide Update on Why Lightspeed POS’ Share Price

Appears Expensive

Lightspeed POS Inc. (LSPD.TO $43.89)

Robin Manson-Hing

Rating: SELL;

Price Target of $31 by May 2020

Sonal Sawant August 28, 2019

Lightspeed POS Inc. Summary

  • Perspectec Rating: SELL
  • Target Price: C$31
  • Current Price (August 28, 2019): C$43.89
  • Market Cap: C$3.7 Billion
  • Largest Shareholders (Voting Ownership):
    • Jean Paul Chauvet, President (1.2%)
    • Dax Dasilva, Founder & CEO (43%)

Material Headwinds to Growth Strategy

Lightspeed’s Stated Primary Drivers for Growth are:

  • A. Expanding their Customer Base
  • B. Rollout Lightspeed Payments
  • C. Grow with its Customer Base
  • D. Expand on Module Uptake

Material Headwinds to Expand its Customer Base

  • Lightspeed’s Customer Growth has (and will) come almost entirely from acquired platforms.

Estimated Customer Locations Added

  • Estimated Customer Locations Added (End of Period) / Sales and Marketing Costs (Quarter)
  • TTM June 2019 = [51,000 – 42,000] / ($43.4 million) = $4,800 cost to acquire one store ( $6,000 with costs of acquisitions)

Estimated Quarterly Costs to Organically Acquire a Customer Location

  • May have been higher excluding the Chronogolf Acquisition.

Lifetime Value Requires a Churn Rate

  • Our Online Survey Shows a Rate of 46%, surprisingly high given ‘the majority of Customer Locations are contracted for at least 12 months’.

On a Relative Basis

  • Lightspeed’s Churn rate was the Lowest versus Square (SQ), Wix (WIX), Shopify (SHOP), and GoDaddy (GDDY).

WACC of 1% based on Equity Raises to Maintain Growth

  • Our estimates have Lightspeed’s Customer Acquisition Costs (CAC= ~$6,000) materially higher than their Customer Lifetime Value (CLTV ~2,800).

Customer Lifetime Metrics

  • Customer Lifetime Value (CLTV) = (Gross Margin Dollars/(Churn Rate -(Net Expansion Rate+1) + WACC) + Hardware Gross Margin) / Est. Avg. Customers *= ~$2,800 CLTV (per customer Both Q2 and TTM)

An Estimated 85% of Revenue

  • is Generated by the Retail/Restaurant Industry that is Growing in the Low Single Digits.
  • The U.S. Retail/Restaurant Industry is Growing @ 2% whereas the U.S. eCommerce Industry is Growing @ 13%.
  • Source: Perspectec Estimates and Company Reports

Definitions Obscure Real Customer Growth

  • Lightspeed’s Accelerated Reported Customer Growth Rate post their IPO is being Driven by:
    1. Referencing ‘Customer Locations’ vs. ‘Customers’
    2. Excluding Customers on their Legacy Premise software

Feedback on a Relative Basis

  • Relatively Positive Feedback from Restaurants

    • Silverware (Legacy & Cloud)
    • Clearview

  • Relatively Average Feedback from Restaurants

    • TCPOS (Legacy)
    • PosiTouch
    • Micros (acquired by Oracle in 2014 for $5B)
    • NCR

  • Relatively Poor Feedback from Retailers

    • Lightspeed
    • Chaindrive
    • Micros

Valuation – On a Historical, Relative, and Absolute Basis, Lightspeed is Expensive

EV per Customer Location

  • Absolute Basis: Lightspeed is Expensive by Historical Metrics, LSPD is Multiples Times More Expensive by Almost Any Metric.

Appendix: A Frankenstein POS Solution

  • $350 million in Funding Allowed Lightspeed to Purchase their Entire Cloud Platform (Retail, Restaurant and eCom)
  • Key Features:
    • Product & Menu management for employees to use
    • Multi-platform integration including Loyalty Management
    • Payments and Back-office Software (CRM, Inventory Management, etc.)

Appendix: Issues with Lightspeed Retail

  • Common Issues:
    • Inconsistency in operating between iPad and PC
    • No WooCommerce integration with Lightspeed Retail
    • Some features only work on specific platforms.
    • High costs compared to competitors.

Lightspeed Price Target

  • Our Lightspeed price target is equal to 94x our fiscal 2020 estimated gross margin dollars added ($21.4 million) multiplied by its estimated TTM LTV Added/TTM GC of 1.05x.
  • This gets us to a target price of $31 per share by May of 2020.
  • Risks to our Target Price include:
    • The price for acquisitions is materially lower than expected
    • Fund flows continue to move heavily and indiscriminately into the Commerce Cloud Growth space.