# 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

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### 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%)

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## 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.

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### 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.

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### 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).

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### 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)

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### 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

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### 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

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## 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.

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## 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.)

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### 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.

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### 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.

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