Shares of Shopify sank about 16 percent on the Toronto Stock Exchange on Tuesday in reaction to news that it would cut 10 percent of its workforce, trading at $39.60 as of noon ET. CEO Tobi Lütke said in a letter to employees released Tuesday that the company is betting that the global retail transition to e-commerce, which accelerated during the COVID-19 pandemic, will continue to accelerate. The Ottawa-based company, which supports digital storefronts and provides a variety of e-commerce services to its “millions” of merchants, had increased its workforce to meet the demand it anticipated, Lütke wrote. As of March 1, 2020, Shopify said it had more than 5,000 employees. as of Tuesday it said it has more than 10,000 not counting layoffs. This means that the company effectively doubled the number of employees during the pandemic. Story continues below ad Shopify was the country’s most valuable listed company for much of the COVID-19 pandemic, taking the crown from Royal Bank of Canada on May 6, 2020, and briefly fell out of the top spot in March 2021 before RBC reclaimed the title in January of this year as tech stocks tumbled. “It’s now clear that the bet didn’t pay off,” Lütke said, taking the blame.
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“Now, we have to adapt. Consequently, we have to say goodbye to some of you today and I am deeply sorry for that,” he said. Most of the layoffs are in recruiting, support and sales jobs, Lütke wrote, as well as eliminating over-specialized and duplicative roles. 3:04 Money matters with Baun Investment Group at Wellington-Altus Private Wealth Money matters with Baun Investment Group at Wellington-Altus Private Wealth
Shopify shares sink on layoff news
Incorrect assumptions are largely responsible for Shopify’s antics, Neil Saunders, CEO of GlobalData, said in a note to investors. Story continues below ad “In blunt terms, this was a huge strategic mistake due to a lack of understanding of customer behavior, a lack of rigor in market analysis and a bit of hubris,” he said. Analysts Colin Sebastian and Rhys Ivory-Ganja of Baird Equity Research wrote in a note to clients on Tuesday that the layoffs are a “needed course correction” for Shopify, which they note was still preparing for “aggressive” hiring plans as recently as on March. Trending Stories
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“With many investors very concerned about the initial level of planned spending this year, the least of the bad news today is that Shopify management will now have to focus more on operational efficiency,” wrote Sebastian and Ivory-Ganja. Shopify is one of the tech stars that has taken a hit during recent market declines, retreating from an all-time high of $222.87 in November. (Share prices have been adjusted following a recent 10-for-1 stock split.)
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Canada’s main stock index, the S&P/TSX composite, fell 105.44 points to 18,999.04 late Tuesday morning as Shopify’s decline weighed on the information technology sector. The e-commerce giant is not alone in laying off workers. In recent months, Wealthsimple, Klarna, Twitter and Netflix have laid off staff as investor euphoria around tech stocks has faded, inflation has soared to a near 40-year high and rumors of a recession have flared. Story continues below ad Shopify has suffered from a retreat in discretionary spending on products, which is a big part of its sales platform, Baird analysts wrote. However, they noted that the long-term outlook for the e-commerce sector remains “very bright” and suggested that Shopify could see a boost if pandemic travel demand eases and shifts to goods in the fourth quarter of the year. The company needs to do more than cut jobs, Saunders argued. 4:00 Summer travel leads to busy airports Summer travel leads to busy airports Overall, Baird sees revenue growth coming in at about 20 percent in 2022, below consensus estimates in the mid-to-high 20 percent range. Story continues below ad Shopify is set to report second-quarter earnings on Wednesday morning. The cuts combined with Shopify’s recent performance raise the possibility that the company will cut its outlook when it reports its latest earnings on Wednesday. RBC Capital Markets analyst Paul Treiber told investors he expected Shopify to revise up its full-year expectations. The company previously suggested that the number of merchants using Shopify’s software would be comparable to that of 2021, and that merchant solutions revenue growth would be more than double the growth rate of subscription solutions revenue year over year.
Shopify employees can reserve home furnishings
Shopify’s layoffs, which will take effect by the end of the day Tuesday, will be accompanied by 16 weeks’ severance pay plus one week per year of the employee’s service. Restrictions on when an employee can sell shares in the company will also be lifted and medical benefits will be extended, Lütke said. Story continues below ad Shopify moved to a fully remote setup in the early days of the pandemic, one of the first companies to take such a step in March 2020, and kept the model permanently. The company is taking back the “material” it provided to employees, Lütke said, but those affected can keep the home office furniture that Shopify covered during that time. The company will continue to pay Internet bills during the transition and provide a “startup allowance” to help pay for new laptops. He also said the company would help affected workers find new jobs where possible. — with files from The Canadian Press 3:06 Buyer beware: Shopify is not an online marketplace Buyer beware: Shopify is not an online marketplace – June 21, 2021 © 2022 Global News, a division of Corus Entertainment Inc.
