CIBC Upgrades Lightspeed to “Outperform” from a “Neutral” Rating

Lightspeed Analyst Coverage

CIBC’s upgrade on Lightspeed to an “Outperformer” from “Neutral” is based on their assessment of the company’s strategic pivot towards growth and profitability. Here’s a breakdown of their analysis:

Reasons for the Upgrade:

1. Presentation Insights: The upgrade was influenced by Lightspeed’s CFO, Asha Bakshani’s presentation at CIBC’s (Analyst Rank #12) Technology & Innovation conference, which provided detailed insights into the sources of growth and EBITDA expansion supporting the company’s strategic pivot.
2. Growth and Margin Expansion: CIBC has confidence in Lightspeed’s ability to execute on its growth and margin expansion priorities, citing credible sources of growth and EBITDA expansion.
3. Improved Positioning: Lightspeed is perceived to be better positioned to execute its growth and margin expansion strategies in the current year.
4. Valuation Multiple Increase: The factors supporting Lightspeed’s growth and margin expansion priorities have led to an increase in CIBC’s valuation multiple and price target.

Key Points from Lightspeed’s Strategy:

1. Growth Initiatives: Lightspeed aims to expand adjusted EBITDA while growing its high-GTV customer base, subscription revenues, payments adoption, and merchant cash advances (MCA).
2. Revenue Growth: The company expects software revenue growth to increase, driven by selective price increases and the redeployment of its salesforce to focus on new customer additions.
3. Payments Adoption: Lightspeed plans to increase payments adoption and provide more Merchant Cash Advances, which are expected to contribute to EBITDA margin expansion.
4. Target Customer Profile: The company is focused on SMBs with high gross transaction values (GTV) in retail and hospitality, aiming to attract higher-value customers.
5. Advantages of Lightspeed’s Platform: The platform is deemed suitable for larger merchants with complex needs, particularly in cloud POS and integrated payments.

Financial Projections and Price Target:

• CIBC’s price target for Lightspeed is increased to C$33 (from C$26) based on a valuation multiple of 3x their F2025E sales forecast.
• This valuation is justified by Lightspeed’s growth prospects, strategic initiatives, and comparative valuation metrics against peers and industry indexes.

Upside and Downside Scenarios:

• CIBC provides potential upside and downside scenarios based on different sales and valuation assumptions, with price targets ranging from C$13 to C$49.

Overall, CIBC’s upgrade on Lightspeed reflects their confidence in the company’s ability to execute its growth and margin expansion strategies, leading to improved positioning and increased valuation targets.