Lightspeed POS (LSPD): Recurring Revenue Engine and Margin Gains Signal Buying Opportunity

Lightspeed Commerce Inc. (LSPD) has delivered a set of Q4 2024 earnings that underscore its transition from a transaction-driven business to a high-margin, recurring revenue model. Amid a challenging macro backdrop, the company’s focus on subscription growth and margin expansion has positioned it as a compelling investment opportunity. Let’s dissect the numbers to see why now could be the time to act.

The Subscription Flywheel Is Accelerating

Lightspeed’s subscription revenue grew 8% year-over-year to $87.9 million in Q4, a modest but meaningful improvement given its focus on high-margin software services. While transaction-based revenue (up 14%) remains a larger contributor, the subscription line is the engine of profitability. The company’s subscription gross margin jumped to 81% from 77% a year ago—a staggering 400-basis-point improvement driven by price hikes and cost discipline.

This margin expansion is critical. Subscription ARPU rose 11% to $489, and when adjusted for Lightspeed’s new consolidated “Customer Locations” metric (combining POS and e-commerce sites), monthly ARPU hits $545. This reflects a deepening relationship with customers, particularly in key markets like North American retail and European hospitality.

Margin Gains Offset One-Time Charges

The Q4 results were clouded by a $556.4 million non-cash goodwill impairment charge, which stemmed from declining market valuations in its acquired businesses. This slammed net loss to $576 million, but adjusted EBITDA surged to $12.9 million from $4.4 million a year ago. The takeaway: operational execution is improving, even as balance sheet adjustments create noise.

The company’s three-year plan targets 15-18% CAGR for gross profit and 35% CAGR for Adjusted EBITDA, underpinned by salesforce expansion, product innovation, and efficiency gains. With subscription margins now hitting 81%, management has the runway to deliver.

Valuation: A Discounted Growth Story

Lightspeed’s stock has lagged peers this year, but its valuation now looks compelling. At a P/S ratio of 4.5x (vs. 6-8x for peers like Shopify or Square), it trades at a discount despite its margin tailwinds. Meanwhile, free cash flow is turning positive, and the company has returned $219 million to shareholders via buybacks in the past year—signaling confidence in its valuation.

Why Now?

The market is pricing in short-term noise (goodwill charges, macro uncertainty) but missing the long-term story. Lightspeed’s strategic focus on high-value verticals—like retail in North America and hospitality in Europe—is bearing fruit. With 144,000 customer locations and sticky subscription contracts, the company is building a durable software business.

The three-year targets are ambitious but achievable. If it can sustain 10-12% revenue growth and hit its margin goals, LSPD could become a cash flow machine. Investors willing to look past one-time charges and short-term volatility stand to benefit.

Risks to Consider

• The goodwill impairment highlights overpaid acquisitions in prior years, which could weigh on investor sentiment.
• Subscription growth (8%) lags transaction revenue growth (14%); execution on strategic initiatives is critical.
• Economic slowdowns could pressure small businesses, Lightspeed’s core customer base.

Conclusion: A Bottom-Fishing Opportunity

Lightspeed’s Q4 results reveal a company in transition—one where recurring revenue and margin discipline are overtaking legacy issues. At current valuations, the stock offers asymmetric upside: the risks are priced in, and the upside from margin expansion and strategic focus is substantial. With buybacks signaling management’s confidence, now is the time to position in LSPD before the market catches on.

The $556 million charge is a blip on the radar compared to the $15 million adjusted income improvement. Lightspeed is building a software powerhouse, and patient investors will be rewarded. However, historical performance of such a strategy—buying LSPD following margin expansion signals (subscription gross margin >80%) and holding for 30 days from 2020-2025—showed underperformance, with returns of -31.29% versus the benchmark’s 57.34%. While this strategy struggled historically, the current margin trajectory and strategic execution suggest this could be a turning point, warranting a cautious but opportunistic approach.

Act now—this is a stock primed to rebound as operational improvements solidify.