These two companies provide point-of-sale systems and other ecommerce solutions to small and medium-sized businesses (SMBs). There is a tremendous market opportunity in this space, and with both companies down significantly from their highs, which stock is a better investment today?
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Lightspeed: bull versus bear arguments
Lightspeed Commerce [LSPD] is a point-of-sale and ecommerce software provider founded in 2005 by current CEO Dax Dasilva.
The pandemic meant that business was booming for Lightspeed, which allowed it to expand beyond payments into ecommerce with several acquisitions for back office and omnichannel solutions. This dramatically increases its capabilities and total addressable market, but it continues to dominate in niche areas such as retail, restaurants and golf.
In fiscal Q2 2022, revenue increased by 193% year-over-year, reaching $133.2m due to strong organic growth along with acquisitions, with roughly 45% of revenue being subscription-based. Furthermore, it operates in 100 countries, creating a diversified revenue stream with no customer concentration risk.
Lightspeed is operating at a loss which expanded significantly in Q2 of $59.1m compared to $19.1m a year prior due to acquisition costs and stock-based compensation.
The company has historically derived much of its growth from acquisitions which can be a somewhat risky strategy. This strategy was one of many reasons that Lightspeed became the subject of a short report in September 2021, with claims that these acquisitions masked its deteriorating organic growth rate and business deterioration.
Shopify: bull versus bear arguments
Shopify [SHOP] provides merchants with ecommerce solutions and point-of-sale systems. The stock has delivered explosive returns of roughly 2,000% since its IPO in 2015 despite its stock recently being cut in half.
The company remains founder-led by CEO Tobi Lütke, who has fostered a positive company culture, demonstrated by its 4.3 stars out of 5 on Glassdoor.
The company’s mission is “making commerce better for everyone”. Many have referred to Shopify as an anti-Amazon [AMZN] play as it is “arming the rebels”, as it now powers over 1.7 million merchants across 175 countries. Shopify is in a unique position with no conflict of interest, enabling it to attract merchants from small mom-and-pop stores to global brands such as Kraft Heinz.
Shopify saw accelerated growth throughout the pandemic but continues to produce stellar results. In Q3 of fiscal 2022, revenue came in at $1.12bn, up 46% year-over-year, along with monthly recurring revenue of $98.8m. The company also turned a profit with an adjusted net income (net income minus unrealised gains on equity investments) of $140.8m. With a $153bn total addressable market, there is still room to grow significantly.
Recent inflation fears have caused many growth stocks to drop, and Shopify will continue to face rising competition from players such as WooCommerce and Wix [WIX]. Its stock is also not cheap, trading at 26x sales.
So, which is a better buy today?
Shopify is a better buy today. It offers a better risk versus reward scenario than Lightspeed and is likely to continue to produce market-beating returns for years to come.
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