Short answer: nothing is the next Amazon and neither Lightspeed nor Nuvei are the next Shopify, but they do represent good-albeit-risky bets to capitalize on the $2 trillion global payments market.
Disclaimer: Nothing here should be misconstrued as investing advice. I am NOT licensed to give any advice. These writings are intended as entertainment to put into context how a media entrepreneur and investor thinks, given my unique time horizon and risk profile. Educate yourself, read up on mistakes others have made and speak to a licensed professional who can help you based on your investment profile and time horizon.
In May 2020, Shopify overtook Royal Bank of Canada as Canada’s most valuable company. As we edge near the end of the year, RBC weighs in at $150 billion while Shopify sits at a market cap of $160 billion. Is it possible that a major market correction will knock-down Shopify and propel RBC back into the throne? Sure, anything is possible. But 2020 isn’t 2000, and Covid has dramatically accelerated trends that benefit a company like Shopify. So also, unlikely.
Canadian Mentality, part 1
Back in the 1990s, another tech darling – Nortel – commanded lofty valuations but then it all came crashing down. To be clear, other than being high-flyer Canadian stocks, there aren’t many similarities.
Canadians – a conservative bunch by nature when it comes to risk-taking, but a relatively speaking liberal nation otherwise – have since been wary of tech “darlings.” That said, times have changed, and with the Web no longer speculative but a backbone of commerce, and online shopping only growing in volume, then Shopify’s success should come as no surprise.
Shopify, according to their propaganda (aka press releases),
“is a leading global commerce company, providing trusted tools to start, grow, market, and manage a retail business of any size. Shopify makes commerce better for everyone with a platform and services that are engineered for reliability, while delivering a better shopping experience for consumers everywhere. Headquartered in Ottawa, Canada, Shopify powers over one million businesses in more than 175 countries and is trusted by brands such as Allbirds, Gymshark, Heinz, Staples and many more.”
Canadian Mentality, part 2
Canadians are notorious for overlooking homegrown successes. It’s only when one ventures abroad and experiences success that people notice. Think Drake – somewhat discounted early on in Canada before global superstardom made him Toronto’s favorite son. WatchMojo is another example, but I digress.
Mind you, I’m somewhat guilty of this, though not buying Shopify sooner is a reflection of my own reality and not a diss at what the firm set out to do. In fact, I’ve followed Shopify for a decade and was not surprised to see the juggernaut take off from an IPO pricing its share in the $30s to its current perch commanding a $1300 share price (again, I personally pay far more attention to market capitalization than share price). I bought some Shopify stock post-Covid (can you tell I miss sports?) – check out my current portfolio here, which I will discuss transparently via The Academy to help you learn from my mistakes and build on our success navigating digital media in content, commerce, communications.
The Next Shopify: Lightspeed or Nuvei?
Shopify’s success has many many investors look for the next Shopify – whatever that means. Shopify gets billed as the next Amazon, though it has positioned itself as the Anti-Amazon (you shouldn’t mistake it for these folks, the true Anti-Amazon squad).
Invariably, a couple of Montreal-based companies – Lightspeed (LSDP) and Nuvei (NVEI) – come up, even if they are not exactly similar firms when you get down to it. This weekend, I spent some time researching each.
Whereas Shopify ultimately enables commerce online and on merchants online stores specifically, Nuvei and Lightspeed are tackling different parts of the global payments’ industry.
First, a sidenote (shocking)
A few years ago, I was in line backstage waiting to go on stage at the Ernst & Young Entrepreneur of the Year award. Standing next to me was Dax Dasilva, founder of Lightspeed. I kept track of his company’s evolution and growth which have been nothing but outstanding. But admittedly, when I saw an early venture backer Accel opt to be bought out by local pension fund manager La Caisse de Depot, it struck me as a bit of a red flag. That was years ago, pre-IPO, mind you, and apparently due to Accel favoring an exit, in lieu of an IPO.
Meanwhile, I chatted with Nuvei’s (then known as Pivotal Payment) founder Philip Fayer a few years back at which time his company came on my radar. Both individuals are incredibly talented and impressive; it was clear that their businesses were rocket ships, though in very competitive and opaque fields.
Thus, after “retiring” from investing after I had to sell everything and go into serious debt to keep WatchMojo afloat years ago, and being more into Content than Commerce, advertising than payment processing, I didn’t buy shares when either went IPO.
This year, as I got back into investing, I decided I should pay a bit more attention to both stocks, given how Covid will redraw the battleground in their favor and their trajectory was admittedly reminiscent of Shopify’s sustained ascent.
It’s a BIG market
The global payments industry is a $2 trillion market, according to McKinsey (more on MSN). Digital payments, particularly for online shopping and digital services, is accelerating like never before.
When assessing a company’s prospects, I like to start with how companies define themselves, because ultimately corporate communications (which includes public relations and investor relations) dictate how the media reports on companies, and in turn, how investors view – and value – them.
From their respective centers of propaganda:
About Nuvei:
We are Nuvei, the payment technology partner of thriving brands. We provide the intelligence and technology businesses need to succeed locally and globally, through one integration –propelling them further, faster. Uniting payment technology and consulting, we help businesses remove payment barriers, optimize operating costs and increase acceptance rates. Our proprietary platform offers direct connections to all major payment card schemes worldwide, supports 450 local and alternative payment methods and nearly 150 currencies. Our purpose is to make our world a local marketplace.
About Lightspeed
Lightspeed POS Inc. is a leading provider of software, solutions and support systems to the small and medium size retailers and restaurateurs that are at the heart of our communities. Our mission is to empower these businesses, helping them engage with consumers, manage operations, accept payments and generate growth. We may be a leader in our industry, but we are just getting started. We will continue to transform global commerce through our technology, igniting the ambitions of our customers through constant innovation in a rapidly-changing global economy.
Similar but Different
I then proceed to read up a lot about a given company, realizing everyone has a bias or another, before trying to make up my own mind.
Via Fool:
“While Lightspeed primarily caters to the retail segment’s payment needs, Nuvei specializes in providing a payment technology platform for gambling and sports betting. Nuvei also serves as a payment processor to financial service providers, online retail, and travel. Going by its numbers, Nuvei operates in 200 markets worldwide with 150 currencies and serves over 50,000 customers.
Payment processing is already one of the fastest-growing industries across the globe. Interestingly, Nuvei is even more interesting, particularly with its focus on sports betting and allied domains.
(…)
Serving the niche market, Nuvei will likely have the pricing advantage and a big potential for margin expansion. It could be the next beast in the Canadian tech space, given the size of the addressable market.
The main advantage of Shopify and Lightspeed’s payment-processing platform is their end-to-end capabilities. Having all the features like payments to customer management in one platform will ensure convenience and flexibility for merchants.”
Lightspeed – Conventional Wisdom vs Reality
This year, when the pandemic hit, conventional wisdom was that Lightspeed would get affected as many merchants struggled with lockdowns and faced shutdowns over time (this remains a very valid risk facing Lightspeed).
But to their credit, they adapted. Via MSN:
“The team’s decision to pivot away from retail and restaurant payment processing to e-commerce at the start of this crisis has helped Lightspeed stock surge 230% over the past six months.”
My two cents: citing stock appreciation as a reason to buy a stock is not compelling. But what I like about LSPD’s recent M&A is that consolidation of a market pays off, especially if you replace legacy systems with new technologies. That is what made me lean in: if DaSilva has momentum to pluck away more and more competitions, if and when the industries affected by Covid return, he will benefit from degrees of operating leverage, where more and more of the revenues trickle down to the bottom line. As of now, Lightspeed operates in the red.
Nuvei’s Wiggle Room is in the Niches, which Globally Represent Huge Numbers
Via Financial Post:
“So is there room for a company like Nuvei?
Absolutely, Fayer said. And big tech companies taking payments in-house won’t alter that.
“Apple is not a competitor,” he said. “Amazon runs its marketplace and Shopify and Lightspeed use a company like Nuvei, called Stripe, to power their payments, so they work within different verticals from a capabilities standpoint.”
Nuvei’s edge, Fayer said, is that it is a global company that works with 150 currencies and supports 450 payment methods. If companies want to accept payment in Asia, for example, they’d need access to Alipay. In Germany, they’d need Giropay — but Nuvei can make both connections.
Next, some of the companies who might be seen as competitors might operate in only one or two spaces within the payments realm, such as acquiring, connectivity or payouts. Nuvei, however, has a hand in all of them — a factor that Fayer said limits the competition to only three or four firms with the same abilities and reach.
“The sphere of who we compete with is pretty small,” he said.”
Near Term vs Long Term Approach
Meanwhile, via MSN: “Nuvei was launched two years earlier than Lightspeed. As of this year, the company generated $245.8 million in annual sales, compared to Lightspeed’s $120 million.”
Since Nuvei’s IPO, Nuvei edged out Lightspeed to be valued more so than its rival, $5.7 billion for Nuveo compared to Lightspeed $3.6 billion.”
But since Lightspeed’s acquisitions near the end of 2020, Lightspeed has overtaken Nuvei and stolen some of the thunder. I fully expect a bit of a cool down period with Lightspeed, since the company has hit a 52-week high, whereas Nuvei has dropped from its peak.
Of course, I personally don’t care about near-term fluctuations and am looking at long-term with my “buy it, forget about it” mantra.
Takeaway & Bottom Line
While these companies are in different segments of the broader eCommerce / cloud based payment system spectrum, the reality is they are:
- positively correlated vis-a-vis the broader economy;
- though to some extent, also somewhat negatively correlated to each other within the segment.
For example, wrt Shopify and Lightspeed/Nuvei, Shopify is more pure cloud-based eCommerce while Lightspeed has a base in physical merchants (who are now moving more and more into cloud-based payments, and thus need a global end-to-end interface).
But even merely comparing Nuvei and Lightspeed, you have to appreciate that there may be some overlap, they are aiming for different segments of the global $2 trillion payments market.
I personally don’t think either is the next Shopify, same way Shopify isn’t the next Amazon. But given the consolidation Lightspeed has undertaken and Nuvei’s chances to benefit as more sports, gambling and entertainment shifts online, I am taking small positions in both Nuvei and Lightspeed to compliment my positions in Shopify and Amazon. I’m not smart enough, however, to know whom will be the better stock (I have a hunch, but let me follow both companies a bit more) so I am balancing “greed” with “fear” by investing a bit in each, instead of a lot in one. I will stress that Lightspeed of note is a hugely risky bet given their massive run-up already. My overall portfolio is pretty safe, so how you add risky but promising bets is a matter of one’s time horizon and risk appetite.
Sometimes I look at a company’s Income Statement and realize there’s a disconnect between how the market values them and their current and potential earnings power. That’s one reason I bought shares of Broadband TV despite their inherent weaknesses and risks.
Frankly, as there is so much psychology in investing, the only reason I wouldn’t invest in either would be if I regretted not buying them sooner; but that’s why I didn’t invest in Google after their IPO (how did that turn out)?
But when I look at the long term possibilities, I see Amazon commanding a $2 trillion valuation, followed by Shopify at $150 billion. Seeing Nuvei and Lightspeed fighting for a larger market share of the $2 trillion global payments system while boasting market capitalizations ranging in the $5 to 10 billion, I am somewhat confident that in 1, 5, 10 or 25 years, these franchises will be valued far more, or be acquired sooner in the natural game of consolidation that ensues in emerging industries. But, that doesn’t mean it will be a straight-line!
Disclaimer: Nothing here should be misconstrued as investing advice. I am NOT licensed to give any advice. These writings are intended as entertainment to put into context how a media entrepreneur and investor thinks, given my unique time horizon and risk profile. Educate yourself, read up on mistakes others have made and speak to a licensed professional who can help you based on your investment profile and time horizon.
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