Possible buyout among Canadian fintechs for 2022? [$SHOP and $LSPD] via /r/wallstreetbets #stocks #wallstreetbets #investing


Possible buyout among Canadian fintechs for 2022? [$SHOP and $LSPD]

I’ve noticed that as of late, there has been rampant speculation around the possibility that Shopify $SHOP will buy out or merge with Lightspeed Commerce $LSPD before the end of 2022. The rumours have been flying around on message boards and social media, and they have even appeared on La Presse, a Canadian newspaper.

While nothing is anywhere near confirmed, there is definitely a fair bit of logic behind the possibility of a such transaction happening.

  1. Shopify is specialized in e-commerce and has recently been working on a point of sale, while Lightspeed Commerce is specialized in point of sale services and has been working on e-commerce solutions since the pandemic began. This makes the two companies highly complementary.
  2. Due to recent market conditions, both Shopify and Lightspeed Commerce have taken a severe beating to their share prices. However, Shopify still trades at a trailing EV/Revenue of 18 (EV is just over 70B, while trailing revenue is just over 4.2B). Meanwhile, Lightspeed Commerce has had that same metric fall all the way down to 5 (EV is just over 2.4B, while trailing revenue is around 484M). This means not as much dilution on Shopify’s side should it merge with Lightspeed Commerce.
  3. Lightspeed Commerce’s former CEO recently resigned from his position. It is a lot more common for a company to be bought out when the current CEO didn’t start the company. Focus has also been shifted from growth to profitability, however this could simply be due to current market conditions.
  4. As the world properly moves on from the pandemic era, Shopify is bound to face some headwinds, while Lightspeed Commerce will face the opposite situation. This is because e-commerce got a major boost between 2020 and 2022, but part of it is only going to have been temporary. Meanwhile, physical business locations aren’t going anywhere anytime soon, especially those that Lightspeed Commerce focuses on (that is, restaurants and golf courses). As mask and jab mandates and customer count limits finally subside, brick and mortar stores are bound to receive a boost in attendance.

Lightspeed Commerce $LSPD 1 year price chat

As for what could complicate a such transaction, it is worth noting that Lightspeed Commerce is currently trading at around one third of its 200-day moving average. This means that the average buy price far throughout the last 10 months far exceeds that of the latest trades. Share offerings have also occurred throughout the same period of time, and were done at many times the current price. This could indicate that Shopify would need to pay a massive premium to make a such acquisition. It could be 200%, or perhaps even 250%.

However, Shopify does not currently hold that much cash. It only holds around 7.5B as of the latest earnings report, which implies that it could only purchase Lightspeed Commerce for up to ~$50 a share, since the latter has around 148M shares outstanding. As for the possibility of a merger, that is complicated by the beating Shopify’s shares have taken since November 2021. This is because Shopify would have to dilute its current shareholders way more that it would’ve had to a few months ago to go through with a such transaction.

Shopify $SHOP 1 year chart

With all of that said, what are you guys’ thoughts on this? Do you believe a such buyout will be happening this year? If so, what share price do you believe Shopify would have to pay for a such transaction to go through? Also, please let me know if any of the information in this post is false, and I’ll fix it accordingly.

Submitted March 06, 2022 at 09:28PM by cynical_trader
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