Class Action Alleges Lightspeed Commerce Misled Investors on Key Business Metrics, Financial Prospects

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Lightspeed Commerce faces a proposed class action that alleges the Montreal-based e-commerce software provider has issued materially false and misleading statements since September 2020 that ultimately caused the company’s stock to hit an artificially inflated $130 per share last month. 

The 25-page complaint alleges that Lightspeed, between September 11, 2020 and November 3, 2021, was not entirely forthcoming with investors. According to the lawsuit, Lightspeed falsely and misleadingly stated and/or failed to disclose that it had inflated its pre-IPO business metrics and financial prospects by overstating its true customer count by 85 percent. In addition, Lightspeed overstated by 10 percent its true gross transaction volume, which a former employee has described as “smoke and mirrors,” the case alleges. 

In light of the forgoing, Lightspeed also then overstated its key metrics and figures by claiming that its average revenue per user was increasing while concealing “declining organic growth and ongoing business deterioration,” the complaint says. The lawsuit also claims Lightspeed did not inform investors that it had undertaken an acquisition spree at escalating costs with “no clear path to profitability” as management pursued aggressive revenue reporting practices. 

Ultimately, Lightspeed did not disclose to investors that it had been operating with defective internal controls and ineffective oversight of its accounting practices by its outside audit firm, claims the case. 

“As a result of Defendants’ false statements, Lightspeed Commerce shares traded at inflated prices during the Class Period,” the suit alleges, asserting that Lightspeed’s stock price ultimately fell more than 45 percent from its peak between September 11, 2020 and November 3, 2021. 

The lawsuit says that the truth began to emerge when New York-based investment management and research firm Spruce Point Capital Management published a report “based on its own extensive research into non-public information” that was highly critical of the Lightspeed business metrics and financial prospects at issue. According to the filing, Spruce Point came to characterize Lightspeed as “a cash degenerative North American roll-up of point-of-sale commerce solutions,” one that had covered up “massive inflation of its Total Addressable Market (TAM), customer counts, and [gross transaction volume].” Moreover, Spruce Point contested in its report that Lightspeed had been concealing increasing competitive pressures and double digit organic declines with a “flurry” of the aforementioned acquisition activity, the suit says. 

Further, the Spruce Point report noted that although Lightspeed initially guided investors to its cash from operations as the best way to measure performance, that guidance was “quietly suspended.” Spruce Point concluded that Lightspeed Commerce, as a $17 billion company, was crowding competitor Shopify’s space and would be forced to compete head-to-head with the company and Amazon in a losing battle, the complaint relays. 

In response to Spruce Point’s report, Lightspeed issued a press release wherein it emphasized that the company had “consistently delivered revenue growth” since its initial listing on the Toronto Stock Exchange and that its first quarter 2022 revenues were up 220 percent from the prior year quarter, the case continues. Lightspeed, however, offered no comment on Spruce Point’s other findings, the suit says. 

From there, the market price of Lightspeed common stock plunged by almost $14 per share across September 28 and 29, 2021, the lawsuit says. According to the suit, Lightspeed then announced on November 4 that a full half of its second quarter 2022 financial results came from new business acquisitions while its organic revenue segment grew by only 58 percent, well below the 78 percent growth the company had touted just a day prior. 

“More critically, the Company’s guidance for the rest of its fiscal year 2022 (‘FY22’) demonstrated that its earlier revenue growth had indeed been driven primarily by acquisitions as the Spruce Capital Report had charged, and that those tailwinds were now rapidly fading,” the filing states, noting Lightspeed was now forecasting only roughly a seven percent growth in revenue for the next quarter, which implied it would experience “no sequential growth whatsoever” once it reached 2022’s fourth quarter. 

On this news, the price of Lightspeed common stock fell more than $27 per share, the case says. 

The lawsuit looks to cover all persons who purchased or otherwise acquired Lightspeed Commerce subordinate voting shares between September 11, 2020 and November 3, 2021. 

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