Last week I profiled five companies offering Point-of-Sale (POS) solutions, including Square, Toast, Lightspeed Commerce, Shift4 Payments, and Shopify (you can read the update by following the link 👉🏻 “Fintech companies powering "in real life" commerce”). These companies target different customer segments and geographies, but they all have one thing in common: financial services are important drivers of their revenue growth. They might have started as pure software vendors, but, over time, started offering payment processing and working capital solutions.

Today I would like to profile Lightspeed Commerce (NYSE: LSPD, TSX: LSPD). Lightspeed Commerce serves more than 300,000 small and medium-sized companies in the hospitality and retail segments and operates in more than 100 countries. Founded in 2005 in Canada, the company masterfully expanded through acquisitions: i.e. it entered the hospitality segment by acquiring a Belgian startup POSIOS, added e-commerce capabilities by acquiring a Dutch startup SEOshop, and grew internationally through the acquisitions of ShopKeep and Vend.

Last year, Lightspeed announced acquisitions of Ecwid and NuOrder (spending a total of $925 million), as well as raised $823 million in additional capital through a public offering. I guess, there are many exciting things ahead for Lightspeed, so let’s learn more about this company!

Please note that the company’s fiscal year ends on March 31. For example, Fiscal 2022 means the period from Q2 2021 to Q1 2022.

Business Overview

In their own words, “Lightspeed offers a cloud-based commerce platform that connects suppliers, merchants, and consumers while enabling omnichannel experiences. Our software platform provides our customers with the critical functionality they need to engage with consumers, manage their operations, accept payments, and grow their businesses.” Let’s break that statement down.

The company offers two flagship products Lightspeed Retail and Lightspeed Restaurant, which are cloud-based software solutions targeted at restaurants, hospitality, and retail businesses. Lightspeed products allow businesses to accept customer orders via online, mobile, and offline Point-of-Sale (“engage with customers”), manage products, menus, inventory, and employees (“manage their operations”), as well as accept customer payments (“accept payments”) either using Lightspeed payment processing capabilities or using third-party processors.

Image source: Lightspeed Retail

The company targets primarily “sophisticated” small and medium-sized businesses, and at the end of Fiscal 2022 (end of March 2022), 63% of the customers represented retail merchants, while 37% represented hospitality businesses. Lightspeed was founded in 2005 in Canada (the company has a dual listing, on New York and Toronto Stock Exchanges), but since then has become a truly global business (organically and, as noted earlier, through masterful acquisitions). Thus, at the end of Fiscal 2022, only 51% of Lightspeed customers were based in North America.

The company positions itself as a software business; however, like many other point-of-sale solution vendors, it realized the potential in offering its clients end-to-end payment processing and working capital financing solutions. Thus, in 2019 the company launched Lightspeed Payments, and in 2021 launched Lightspeed Capital. Payment processing, in particular, has strong potential to drive the company’s revenue growth for years to come, as only 13% of the total payments initiated from Lightspeed POS solutions are processed by the company (and the rest are processed by third parties). The company also offers a full suite of POS hardware, such as payment terminals.

Image source: Lightspeed Payments

Finally, in 2021 Lightspeed made two additional acquisitions. The company acquired an e-commerce platform Ecwid (for $500 million), and a B2B ordering platform NuOrder (for $425 million). NuOrder became the backbone of the Lightspeed Supplier Network, which allows merchants to order products directly from suppliers within the Lightspeed solution. Lightspeed Supplier Network is still in the pilot mode and is the company’s long-term bet, which means it is not expected to make a meaningful financial contribution in the short term.

Customer Locations

One of the key operating metrics for Lightspeed is “customer locations”. The company defines “Customer Location” as “a billing merchant location for which the term of services has not ended, or with which we are negotiating a renewal contract.” Lightspeed grew customer locations at a Compound Annual Growth Rate (further in the text just CAGR) of 41% during the Fiscal 2018-2022 period, reaching 163,000 locations by the end of Fiscal 2022.

In addition, the company served approximately 160,000 Ecwid customer locations, bringing the total to 323,000 locations. As mentioned above, Lightspeed focuses on serving “sophisticated” customers (multiple locations, multiple distribution channels, etc.), and some of the Ecwid customers do not fit this profile. As the result, the company estimates that around 10,000 Ecwid customers will churn.