Lightspeed POS Inc. president Jean Paul Chauvet remembers the time he encountered Shopify Inc. CEO Tobi Lutke and top lieutenant Harley Finkelstein a few years ago. The conversation was friendly, but the undertone was barbed.
Both Canadian companies were in the commerce software business and on friendly terms. Ottawa-based Shopify was a few years ahead of Lightspeed, already publicly traded and primarily focused on serving e-commerce merchants. Lightspeed, which went public in March, 2019, focused on providing point-of-sale cloud-based software to restaurants and physical retailers. Nobody really talked about them as competitors, though each was inching into the other’s territory.
But “we’ve always known” the two companies would eventually become rivals, Mr. Chauvet said in an interview. “I remember saying to Tobi and Harley at the time, ‘I think this will end up in a Braveheart battlefield at some point.’ "
That moment appears to be drawing closer: In June, Lightspeed spent US$500-million for Ecwid, a San Diego e-commerce platform provider with 130,000 merchant customers and the capability to let them sell through social-media sites and online marketplaces. “We’ve now equipped ourselves with a platform that can compete directly with Shopify,” within the customer segments that matter for Lightspeed, Mr. Chauvet says.
While the two are rivals, the battle is likely to shape up for now as more of a beauty pageant than a war. Both companies have momentum, a lot of fans and a lot of room to grow in a vast market. The two companies have “two of the best-positioned platforms” to benefit from the intersection of online-commerce enablement software and financial services, Credit Suisse analyst Timothy Chiodo wrote in a recent report.
With Lightspeed set to report first-quarter earnings Thursday, the Street’s outlook on the company, which has yet to post a profit, has never been more optimistic. Analysts expect revenues for the period ended June 30 to reach US$92.8-million, up 156 per cent year-over-year thanks to acquisitions and brisk organic growth. Revenues are expected to top US$470-million for the year. “We believe Lightspeed shares are attractive and should be purchased,” analyst Todd Coupland of CIBC World Markets said in a note.
Analysts have hiked their earnings estimates and share price targets for three reasons: In countries such as Germany and the United States that have started opening up as pandemic, the restaurant business – a key Lightspeed segment – has rebounded.
In addition, just 10 per cent of Lightspeed’s customers have adopted the payments processing service it started offering in 2019 – but it’s the fastest-growing part of the business. The company began offering payments services to customers in Australia and Europe this year; analysts estimate the company, which booked US$221.7-million in revenue last year, could add hundreds of millions of dollars annually if it gets payments adoption penetration near 50 per cent, like Shopify. That level is “achievable,” and gives Lightspeed “tremendous runway on payments,” analyst Thanos Moschopoulos of BMO Capital Markets said in a note.
The third reason analysts are bullish is that Lightspeed has spent more than US$2-billion on five companies in the past 10 months, including Ecwid. Lightspeed isn’t just buying anything that moves like some consolidators; unlike many acquisitors, its existing business is growing at a 40 per cent clip. Lightspeed has been more selective in its approach than the volume of deals might suggest.
Three of its deals were for smaller competitors, allowing Lightspeed to consolidate its presence as a key provider of point-of-sale software to merchants in its target group of 12 retail and hospitality businesses whose operations are typically more complex to run than most online stores, such as bike shops, jewellers, electronics merchants and golf courses.
“I think the pandemic accelerated that part of their growth strategy, allowing them to be opportunistic” and buy up some of their point-of-sale competitors that weren’t well capitalized, National Bank Financial analyst Richard Tse said.
In addition to the Ecwid acquisition, which expanded Lightspeed’s ability to service online-only merchants, the company’s fifth deal builds on a nascent goal that would further differentiate Lightspeed from Shopify: to become the dominant supply channel for its customers. To reflect its expanding strategy beyond providing point-of-sale software, Lightspeed is asking shareholders to approve a name change, to Lightspeed Commerce Inc., at its annual meeting Thursday.
On the same day it announced the Ecwid deal in June, Lightspeed said it had also agreed to pay US$425-million for Los Angeles-based NuOrder Inc., which provides an online platform for 100,000 retailers to automate wholesale product ordering from thousands of brands.
Mr. Chauvet said suppliers are keen to see merchants order through the platform, which will give them better visibility on demand, and shape manufacturing and selling decisions. For example, bicycle supplier Giant has already told North American bike shops – more than 60 per cent of which use Lightspeed – they must use the platform to order its products. That will increase Lightspeed’s business and drive down its cost to pick up clients. The supplier platform gives Lightspeed “something nobody else has, which means we have this integration between suppliers, stores and consumers,” Mr. Chauvet said. “When we look at monetization, there’s so much runway everywhere.”
That includes rolling out new financial services, which Mr. Chiodo estimates could expand to include payroll, card issuance, accounts payable automation, tax services and shopping by 2030.
Now Lightspeed has to integrate its slew of acquisitions; Mr. Chauvet says the company will likely pause for several quarters before making another one. He draws on another Hollywood analogy to describe the situation Lightspeed’s “Season One,” which started with its IPO, has ended after its spate of recent acquisitions. In “Season Two,” he said, “I think we’re all going to be amazed by the value of the integration between suppliers, stores and consumers.”
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