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Lightspeed Commerce to focus on larger merchants in profitability pursuit

The Montreal-based payment software firm will focus more on companies with higher inventory levels

Almost a month after laying off 300 workers, Lightspeed Commerce Inc.'s chief executive J.P. Chauvet, shown in this undated handout, says his company has plans to hire between 150 and 200 more staff. THE CANADIAN PRESS/HO-Lightspeed Commerce Inc. *MANDATORY CREDIT*
Almost a month after laying off 300 workers, Lightspeed Commerce Inc.'s chief executive J.P. Chauvet, shown in this undated handout, says his company has plans to hire between 150 and 200 more staff. THE CANADIAN PRESS/HO-Lightspeed Commerce Inc. *MANDATORY CREDIT* (HANDOUT)

As inflation and macroeconomic concerns weigh on consumer demand, Lightspeed Commerce (LSPD.TO)(LSPD) says it will focus on acquiring larger merchants in its pursuit of profitability.

Jean Paul Chauvet, chief executive of the Montreal-based payment software company, says economic uncertainty and shifting investor sentiment around the technology industry have pushed the company to focus on acquiring larger clients to its customer base.

"We've become way more disciplined. Instead of going after everybody within the (small and medium-sized business) market, we're focusing on the more established, bigger ones," Chauvet said in an interview with Yahoo Finance Canada.

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What that means is Lightspeed is less interested in single-owner operated businesses working from a home, Chauvet says, and more focused on companies with higher inventory levels. It's more interested in fine-dining restaurants that are complex to operate, he explains, not quick-service restaurants (unless it has multiple locations.) For example, Lightspeed currently boasts several Michelin-starred restaurants on its client roster, including Alinea and the French Laundry in the United States.

"(Our customers) are not small or medium coffee shops or single-owner operators," he said.

"If you can manage your inventory with your eyes, you don't need Lightspeed."

The strategy to acquire larger and more profitable merchants comes amid a broader shift in the technology industry, one that has seen investor and executive focus shift from growth-at-all costs to sustainable profitability amid economic uncertainty. It also comes amid waning consumer demand, particularly in e-commerce, which has fallen from the highs during the COVID-19 pandemic.

This year has seen a wave of layoffs in the tech space. Lightspeed has not been immune to the trend, and announced in January that it would be cutting roughly 10 per cent of its staff, or 300 roles.

We streamlined the organization… We need to double down on our new products.Jean Paul Chauvet, Lightspeed CEO

Chauvet says last month's layoffs were not a cost-cutting measure, but related to the consolidation of the company's recent acquisitions into one system. While it laid off staff, Lightspeed is still hiring approximately 150 people, including account managers, sales people and developers as it seeks to expand its market share.

"It's not musical chairs," Chauvet said, adding that a majority of the cuts were in management positions.

"The way I look at it is we streamlined the organization… We need to double down on our new products."

Some analysts see benefits in Lightspeed's strategy.

"The challenge selling to small and medium-sized businesses (SMB) is reaching them in a cost-effective manner and keeping churn, structurally higher in SMB markets, under control," ATB Capital Markets analyst Martin Toner wrote in a note to clients last week. He notes that merchants with greater than $500,000 and $1,000,000 in annual gross transaction value increased 15 per cent and 19 per cent at Lightspeed, respectively, in its most recent quarter.

"Over time, we believe ongoing strength with these merchants as they become a larger percentage of the customer base will accelerate growth in Lightspeed's (average revenue per unit) and overall revenue," Toner wrote.

But the consumer and economic slowdown is still weighing on its business. Lightspeed cut its full-year fiscal guidance last week, and says it now expects total sales to be on the low end of its previously established outlook of between $730 million and $740 million.

CIBC Capital Markets analyst Todd Coupland downgraded the company's stock rating as a result, from "outperformer" to "neutral," as well as trimmed its price target for its stock from $34 a share to $27. Coupland wrote in a note to clients macroeconomic headwinds and customer churn in the low end of the market as a result of Lightspeed's focus on the high end "will make it difficult for Lightspeed to reach its own financial targets and outperform peers."

Chauvet – who stepped into the role of CEO at Lightspeed just over a year ago – says that while the technology sector is going through a challenging period, he still sees opportunity for the company.

"I don't think we're going to be thriving (and firing on all) cylinders, but we will be growing in a healthy way and we will be profitable," Chauvet said.

"I think it sets us up really well for when consumer spending comes back. When it does, we'll have all the tailwinds going for us… we're just trying to be very cautious in these choppy times."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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