Lightspeed and Shopify enter ‘Braveheart battlefield’ after year of deals that turned software companies into rivals


Jean Paul Chauvet, chairman of Lightspeed, said the company would likely pause for several quarters before making another acquisition after a series of purchases requiring integration.

Christinne Muschi / The Globe and Mail

Lightspeed POS Inc. President Jean Paul Chauvet remembers once meeting Shopify Inc. CEO Tobi Lutke and Senior Lieutenant Harley Finkelstein a few years ago. The conversation was friendly, but the shade was barbed wire.

The two Canadian companies were active in the field of commercial software and maintained friendly relations. Ottawa-based Shopify was a few years ahead of Lightspeed, which was already publicly traded and primarily focused on serving e-commerce merchants. Lightspeed, which went public in March 2019, focused on delivering cloud-based point-of-sale software to restaurants and physical retailers. No one really spoke of them as competitors, although each was gradually advancing into the other’s territory.

But “we always knew” that 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 on a Braveheart battlefield at some point. “

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That moment seems to be drawing near: In June, Lightspeed spent $ 500 million on Ecwid, a San Diego-based e-commerce platform provider with 130,000 merchant customers and the ability to let them sell through social media sites and online marketplaces. “We now have a platform that can compete directly with Shopify,” within the customer segments that matter to Lightspeed, said Mr. Chauvet.

Although the two are rivals, the battle is likely to turn more of a beauty pageant than a war for now. Both companies have momentum, a lot of fans and a lot of room to expand into a large market. Both companies have “two of the best-positioned platforms” to benefit from the intersection of e-commerce activation software and financial services, Credit Suisse analyst Timothy Chiodo wrote in a recent report.

Lightspeed due to release its first quarter results on Thursday, Street’s outlook for the company, which has yet to post profits, has never been more optimistic. Analysts expect revenue for the period ended June 30 to reach US $ 92.8 million, up 156% year-over-year thanks to acquisitions and rapid organic growth. Revenue is expected to exceed US $ 470 million for the year. “We think Lightspeed stocks are attractive and should be bought,” CIBC World Markets analyst Todd Coupland said in a note.

Analysts have raised their earnings estimates and their stock price targets for three reasons: in countries like Germany and the United States that have started to open up as a pandemic, the restaurant industry – a Lightspeed’s key segment – rebounded.

Additionally, only 10% of Lightspeed customers have adopted the payment processing service it started offering in 2019, but it’s the fastest growing part of the business. The company began offering payment services to customers in Australia and Europe this year; Analysts estimate the company, which posted $ 221.7 million in revenue last year, could add hundreds of millions of dollars a year if it achieves nearly 50% payments adoption penetration, like Shopify. This level is “attainable” and gives Lightspeed “a tremendous payoff trail,” BMO Capital Markets analyst Thanos Moschopoulos 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 doesn’t just buy anything that moves like some consolidators; unlike many buyers, its existing business is growing at a rate of 40%. Lightspeed has been more selective in its approach than the volume of transactions might suggest.

Three of its agreements involved 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 manage than most online stores. , such as bicycle stores, jewelers, electronics dealers, and golf courses.

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“I think the pandemic accelerated that part of their growth strategy, allowing them to be opportunistic” and buy out some of their point-of-sale competitors who weren’t well capitalized, Bank financial analyst said. National Richard Tse.

In addition to the acquisition of Ecwid, which expanded Lightspeed’s ability to serve online-only merchants, the company’s fifth agreement builds on an emerging goal that would further differentiate Lightspeed from Shopify: to become the channel for dominant supply for its customers. To reflect its strategy of expansion beyond providing point-of-sale software, Lightspeed is asking shareholders to approve a name change, to Lightspeed Commerce Inc., at its annual meeting on Thursday.

On the same day it announced the Ecwid deal in June, Lightspeed said it also agreed to pay US $ 425 million for Los Angeles-based NuOrder Inc., which provides an online platform to 100 000 retailers to automate the ordering of wholesale products from thousands of brands. .

Mr Chauvet said suppliers want to see merchants order through the platform, which will give them better visibility into demand and shape manufacturing and selling decisions. For example, bicycle supplier Giant has previously told North American bicycle stores – over 60% of which use Lightspeed – that they must use the platform to order its products. This will increase Lightspeed’s business and reduce its costs to pick up customers. The vendor platform gives Lightspeed “something that no one else has, which means we have this integration between vendors, stores and consumers,” Mr. Chauvet said. “When we look at monetization, there are so many leads everywhere. “

This includes rolling out new financial services, which Chiodo says could expand to include payroll, card issuance, accounts payable automation, tax services and purchasing by 2030.

Now Lightspeed must integrate its multitude of acquisitions; Mr. Chauvet says the company will likely take a break of several quarters before taking another. He draws on another Hollywood analogy to describe the situation where Lightspeed ‘season 1’, which began with its IPO, ended after its string of recent acquisitions. In “Season 2,” he said, “I think we’re all going to be amazed at the value of integration between vendors, stores and consumers.”

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