It’s been a rough start to earnings season.
We’ve seen some pretty significant crashes from both Acuity Ads (AT) and Lightspeed Commerce (LSPD) over the past couple of days and members are asking what the next steps should be.
First, let’s start with the fact that the big drops aren’t necessarily a result of poor performance.
While Acuity did miss expectations, it still managed growth. And as for Lightspeed, it beat expectations on both the top and bottom lines.
There is nothing in terms of actual results that is driving these stocks downwards.
The same can be said for Equitable Bank (EQB), Restaurant Brands International (QSR), and Aecon (ARE), which have all experienced post earnings drops.
These drops have everything to do with forward outlook – mainly around supply chain issues. We’ve talked about some of these already in our Sunday email, but let’s talk specifically about AT and LSPD.
First – Acuity Ads (AT)
AT is being impacted by lower ad spends. Why? If companies can’t secure the inventory necessary they aren’t going to spend on ads to promote said inventory.
Yet despite slower than expected growth, Acuity is still targeting YoY growth next quarter. As of writing, AT’s stock has dropped by 33% post-earnings. This is overdone. Especially when one considers, AT is only trading at approximately 3x cash on hand.
Management also described 2022 as the year of “mega growth” as they wind down legacy business, pandemic hit industries recover, and supply chain issues begin to subside. It also dismissed the notion of share buybacks as it is looking to instead deploy that cash towards acquisitions.
There was plenty to like about earnings and future growth prospects. Unfortunately, FUD is ruling the day and, in our opinion, investors are acting irrationally.
Next – Lightspeed Commerce (LSPD)
It is a similar situation with Lightspeed. The company grew revenue and organic/recurring revenue by 192% and 58% respectively. It topped expectations and remains positive about the outlook.
However, merchants are having a hard time maintaining inventory which is going to impact gross transaction volume in the short-term. Even Lightspeed itself is having difficulty onboarding new customers given their hardware unit is suffering from the global supply chain issues.
In turn, the company guided towards revenue of $140-145M and adjusted EBITDA of -$10 to -$12M whereas average estimates had them pegged at $145 and $9M respectively. Worth noting – even though Q3 and FY guidance came in below estimates, the annual guidance for $520 million to $535 was actually above prior guidance for 510M.
Does any of this justify a 30%+ crash in the stock price? Absolutely not. While estimates will come down, LSPD will still achieved triple digit growth in 2021 and 40%+ growth in each of the next two years.
That is excluding any further acquisitions, and with a $1.1B in cash and cash equivalents, there is plenty of opportunity for the company to further consolidate the industry.
Bottom line
Nothing in these earnings reports, subsequent conference calls or interviews has changed the long-term thesis in these companies. That being said, negative market sentiment can be a powerful headwind which is compounded by panic-selling and those short-term traders looking to make a quick buck.
Neither Dan or I plan on exiting any of our positions. Stay calm and as we’ve said many times before, sometimes the best course of action is no action.
Let’s see how the market settles and plays out over the next little while.
On a more positive tone…
The OSFI (the Office of the Superintendent of Financial Institutions) finally lifted the cap on dividend raises today.
This means that financial institutions such as Bull List and Foundational stocks RY, TD, MFC, IFC, EQB, and BMO can finally return to dividend growth. The expectation is for theses companies to announce above average raises over the next little while. See full details in this press release.
