Harley Finkelstein laid out Wednesday how his Ottawa software company is facing a reckoning after he predicted the amount of shopping being done by people online, rather than at retailers, would be permanently five or 10 years ahead of pre-pandemic predictions. and were hired to meet those expectations.
“We couldn’t know for sure at the time, but we knew that if the prediction came true, we would have to rapidly scale the company to meet that future,” he said, on a call with analysts.
“Fast forward to now, as things have turned out differently.”
Shopify found that the percentage of spending its online merchants are seeing is higher than in 2018, before COVID-19 hit the world, but it’s lower than the company planned and led to a loss of US$1.2 billion in the most recent quarter.
“In short, we exceeded our forecast,” Finkelstein said.
“Recalibrating our investments and spending, we’re making sure we don’t sacrifice the things we think are critical to Shopify.”
His remarks come a day after Shopify laid off 10 percent of its staff — about 1,000 employees based on the company’s 2021 headcount of 10,000.
The layoff, which CEO and founder Tobi Lutke claimed responsibility for, was blamed on Shopify’s miscalculation and weighed heavily on its already-tumbling stock price, which fell 14 percent by Tuesday’s market close. .
Amid a broad market selloff that has impacted the tech sector the most, Shopify’s share price has fallen more than 78 percent since late 2021, peaking at $222.87.
It closed at $45.17, up 11 percent, or $4.48, on Wednesday.
But Shopify is confident it can turn things around, despite its CFO warning on the same call with Finkelstein that inflation is at a nearly 40-year high and is changing shopping habits.
Consumers are now favoring discount retailers and cutting back on spending across multiple categories, a trend expected to continue throughout 2022, Amy Shapero said.
“Our teams are aware of the macroeconomic environment and have rigorously assessed and adjusted our spending priorities,” he said.
That process began with a workforce review that slowed hiring between Shopify’s first and second quarters, while also identifying areas where Shopify could “improve our operations and team” and thereby making layoffs.
The company will continue to slow hiring in 2022 and end the year with a “modest” number of employees, Shapero said.
It’s hard to say what the physical size of the company’s workforce should be, but Shopify isn’t interested in linear headcount growth, Lutke added.
He admitted that the firing had taught him why many company leaders are wary of making big bets like Shopify based on its operations.
“Mathematically, they make a lot of sense,” he said.  “Obviously, you should have a 20 percent chance of a 10-fold increase, but when they don’t work, it has to be kind of a public thing.”
Lutke’s concessions came as Shopify revealed it lost US$1.2 billion, or 95 cents per diluted share, in the second quarter, compared with a profit of US$879.1 million and 69 cents per diluted share a year earlier.
The company said the loss for the period ended June 30 includes a $1 billion net unrealized loss on equity and other investments and about $800 million in net unrealized gain on equity and other investments.
Shopify, which is quoted in US dollars, said its adjusted net loss for the second quarter was US$38.5 million, or three cents per diluted share, compared with a profit of $284.6 million, or 22 cents per diluted share share in 2021.
Revenue rose 16 percent to US$1.3 billion, from US$1.12 billion in the previous quarter.
The company shared that its adjusted operating loss for the third quarter, excluding severance costs, will likely widen in the second quarter and that the fourth quarter will show a loss.
“Shopify has been very aggressive, raising operating expenses, coming out of COVID-19, and adjusting to the realities of a post-COVID-19 e-commerce environment is proving to be noisy and disruptive,” ATB Capital Markets’ Martin Toner said in a note. .  to investors.
This report by The Canadian Press was first published on July 27, 2022.