Watchlist Q1 2021
In this weeks edition, I am going to discuss 3 stocks that are currently on my watch list. The stocks included are purposely less mainstream as I want to try to bring some stocks to the readers attention that you may not be as familiar with. Going forward this is going to be a regular newsletter segment. None of the stocks referenced below are buy recommendations. This list is designed to act as a starting point for you when doing your own due diligence and represents stocks that are on my own radar but I have not invested in at the time of writing.
Lightspeed POS Inc
Market Cap: $8.8 billion
Share Price: $74.72
Lightspeed is a cloud-based commerce platform powering small and medium-sized businesses (SMBs) in over 100 countries around the world. With smart, scalable, and dependable point of sale systems, it's an all-in-one solution that helps restaurants and retailers sell across channels, manage operations, engage with consumers, accept payments, and grow their business. Headquartered in Montréal, Canada, Lightspeed has offices in Canada, USA, Europe, and Australia.
Their mission is to empower SMBs, helping them engage with consumers, manage operations, accept payments and generate growth.
Lightspeed’s customer base is highly diverse in terms of geography, products and services offered. No one customer makes up greater than 1% of their revenue, and more than one third of our revenue originates from outside North America. According to Lightspeed, customers have generated an average of more than 20% revenue growth in their first full year on their platform, generating strong loyalty and a positive net dollar retention rate.
Management are striving to continue adding new customer solutions and modules to their platform over time, including data-driven solutions that will enable them to deepen relationships with existing customers and add new ones. They expect customers to adapt additional modules over time as their businesses grow, driving further incremental revenue for Lightspeed.
Lightspeed Payments, their payment processing solution, was rolled out in early 2019. This solution is fully-integrated with their platform and majorly enhances the product offering. Lightspeed Payments enables monetization of a greater portion of customer Gross Transaction Volume (GTV) passing through the platform, creating a significant revenue growth opportunity.
Latest Financial Results - 30 September 2020
Revenue for the period above referred to as fiscal year 2021 Q2 amounted to $45.5 million representing a 62% increase year-on-year. Customer Locations continued to grow reaching over 80,000 locations globally representing a 40% increase year-on-year.
GTV amounted to $8.5 billion representing a 56% increase year-on-year.
Lightspeed Payments uptake remains strong having recently launched in Canada for retails and US for hospitality. The solution is priced at 2.60% of the electronic transaction volume processed on a gross basis. In the final week of Q2 2021, 10% of the GTV in US retail was processed through Lightspeed Payments.
Gross profit for the period amounted to $27.5 million representing a 42% increase year-on-year and a 60% gross margin.
The digital payments space is an area that I am hugely interested in. Covid-19 created a fear of touching cash and has accelerated the shift towards digital payment methods. I am heavily invested in this area already holding long term positions in PayPal $PYPL, Square $SQ and Sea $SE. Lightspeed offers digital payments and a whole lot more including accounting, inventory, scheduling, membership, workflow, reporting, analytics, and real-time dashboards. Given that the majority of its clients are SMBs including retailers, restaurants, and golf courses this is an investment that also gives exposure to the recovery sectors that were hit hardest during the pandemic.
Sector: Financial Services
Market Cap: $9.0 billion
Share Price: $158.71
Lemonade is a fintech insurance company that makes insurance coverage affordable and accessible for most renters and homeowners. The high-tech business model uses a mobile app and artificial intelligence to help build a plan, file claims and get paid fast. Unlike traditional insurance companies that can take months to pay a claim, Lemonade can pay in as little as three minutes.
Powered by artificial intelligence and behavioral economics, Lemonade set out to replace brokers and bureaucracy with bots and machine learning, aiming for zero paperwork and instant everything.
Fundamentally, Lemonade does the same thing as any other homeowners insurance company: It settles claims to help repair or replace your home and belongings if something bad happens. Homeowners and renters are covered against all the standard risks with Lemonade, including theft, damages, and liability, and can add extra coverage for valuable belongings — but that’s where the similarities stop.
Lemonade operates completely differently than a conventional insurer and is essentially a peer-to-peer (P2P) business. P2P scraps the traditional profit-driven insurance model, where providers collect excess premiums after paying claims as revenue. Instead, Lemonade policyholders insure one another.
If you insure your home or apartment with Lemonade, premiums you pay to the company are pooled with other homeowners or renters. Lemonade takes a flat fee of 25% out of that pool, which pays for operating costs and reinsurance. If anyone in your group makes a claim, money is paid out from the pool to repair their home or replace belongings. At the end of the year, leftover premiums are donated to a charity of your pool’s choosing. This is what Lemonade calls its “Giveback” policy.
Part of the reason Lemonade’s model works is that it’s completely digitized. Lemonade doesn’t operate any physical agencies or write policies through agents. Instead, customers apply, buy, and file claims online or through the mobile app. This keeps overhead costs lean and lets Lemonade put the majority of proceeds toward claims and Giveback. It also helps keep premiums low, with home insurance starting at just $25 per month and renters insurance at $5 per month.
Latest Financial Results - 30 September 2020
Q3 2020 In Force Premium (IFP), defined as the aggregate annualized premium for customers as of the period end date, increased by 99% to $188.9 million as compared to the third quarter of 2019, primarily due to a 67% increase in the number of customers, as well as a 19% increase in premium per customer.
Total customer count increased by 67% to 941,313 as compared to the third quarter of 2019.
Premium per customer, defined as in force premium divided by number of customers, was $201 at the end of the third quarter, up 19% from the third quarter of 2019, primarily due to a continued shift of product mix toward higher value homeowner policies, the introduction - with Pet insurance - of multiple policies per customer, as well as growth in the overall average policy value.
Third quarter gross profit of $7.3 million increased $3.3 million or 83% as compared to the third quarter of 2019, primarily due to the increase in gross earned premium and a lower net loss ratio relative to Q3 2019, partially offset by the lower effective interest rate impact on investment income.
Net loss of $30.9 million ($0.57 per share) for the third quarter improved as compared to net loss of $31.1 million ($2.78 per share) in the third quarter of 2019, as the reduction in revenue driven by their reinsurance structure transition was offset by operating expense efficiencies.
The global insurance industry represents a $5.3 trillion market worldwide and one that is rife for disruption. The main criticism of the established insurance companies is that they do not put the customer first and it is in their interests not to pay claims and make the process as cumbersome as possible. Lemonade and their operating model are seeking to rip up this way of operating. There is a massive opportunity for growth for Lemonade if it can capture a small portion of this highly profitable industry.
eXp World Holdings Inc
Sector: Real Estate
Market Cap: $5.4 billion
Share Price: $77.41
eXp World Holdings is the holding company for a number of companies most notably eXp Realty. As a full-service real estate brokerage, eXp Realty provides 24/7 access to collaborative tools, training, and socialization for real estate brokers and agents through its 3-D, fully-immersive, cloud office environment. eXp Realty also features an aggressive revenue sharing program that pays agents a percentage of gross commission income earned by fellow real estate professionals who they attract into the Company.
Thousands of eXp consumers leverage eXp’s internet marketing and cloud technology to find, buy or sell homes without a brick and mortar office. Finally, millions of Americans understand the benefits of technology and the decreasing reliance on a traditional office.
Despite these trends, most traditional brokerages continue to allocate significant resources to physical bricks and mortar and all of the ancillary costs associated with it – including utility, insurance, rent, CAM, furnishings, and staffing costs – forcing a downward pressure on profits.
“Cloud based” brokerage efficiencies fuel a lucrative compensation structure for agents
Top-producing agents drive transactions and increase sales volume
eXp agents continue to attract other top talent agents, fueling the cycle of success
Expansion-friendly operating model accelerates global growth
Highly attractive commission structure
Revenue sharing program for attracting agents to the brokerage
Equity awards for meeting production criteria
Focused on the future of work, fostering company culture and collaboration with a virtual workplace solution
Enables cloud-based open collaboration for employees, students and attendees
Facilitates unstructured socializing and collaboration with 3D environments and avatars
Delivers cost efficiencies by connecting companies in the cloud
2020 IBM survey reports over half of employees would select a remote workplace as their primary way to work
76% of global office workers want to continue working from home post-COVID-19
Employers save an average of $11,000 per employee annually in office related costs while maintaining or increasing employee effectiveness
Employees save an average of $2,000 to $7,000 annually from commutes
Latest Financial Results - 30 September 2020
Revenue increased by 100% to a record $564.0 million in the third quarter of 2020, compared to $282.2 million in the third quarter of 2019. Gross profit increased 103% to $46.8 million in the third quarter of 2020, compared to $23.0 million in the third quarter of 2019.
Net income was $14.9 million, or $0.20 per diluted share, in the third quarter of 2020, compared to a net loss of $1.8 million, or $(0.03) per diluted share, in the third quarter of 2019. The third quarter of 2020 represents the most profitable quarter in the Company’s history.
Cash flow from operating activities increased 188% to $43.2 million in the third quarter of 2020, compared to $15.0 million in the third quarter of 2019.
Agents and brokers on the eXp Realty platform increased 56% to 35,877 at the end of the third quarter of 2020, compared to 23,034 in the same year-ago quarter.
Residential transaction sides closed in the third quarter of 2020 increased 95% to 75,392, compared to 38,567 in the same year-ago quarter.
Residential transaction volume closed in the third quarter of 2020 increased 112% to $23.6 billion, compared to $11.1 billion in the same year-ago quarter.
eXp Realty earned a 73 global Net Promoter Score, a measure of agent satisfaction, through an intense focus on the agent experience.
This stock covers two trends that I think have a lot of tailwinds; 1) Disruption in the real estate process 2) Increased demand for virtual events.
Firstly, the shift to remote work is going to mean that more people are expected to move from the more densely populated (and often more expensive) areas to some of the less densely populated (and less expensive areas). More homebuyer transactions should benefit the eXp Realty side of the company.
Secondly, with more people working from home, the need for virtual events increases alongside it. VirBela’s value proposition is that it can foster a shared culture to counteract feelings of isolation and limited social interaction and support flexible work conditions to enable companies to hire the most talented employees. As someone who has been working from home since last March when the pandemic hit, I can only imagine how daunting it must be for new employees to join a company and having no face to face contact. Companies are going to have to address this going forward as remote working becomes the norm.
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Wolf of Harcourt Street
Disclaimer: I am not a financial adviser and I am not here to give specific financial advice. The opinions expressed are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The information is based on personal opinion and experience, it should not be considered professional financial investment advice. There is no substitute for doing your own due diligence and building your own conviction when it comes to investing.