Ticker Symbol: SHOP
Shopify shares plunged as much as 17% today after the company said it would be cutting close to 1,000 jobs, or 10% of its total workforce after the company’s Chief Executive Officer and founder, Tobi Lutke, said that a pullback in consumer spending in e-commerce channels was higher than management had initially anticipated. The Canadian company’s shares are down 78% on a year-to-date basis, and 82% from their all-time high hit in November of 2021. The company is set to report second-quarter results on June 27th.
At current trading levels, shares are down to where they were trading in January 2020, essentially giving up all the gains from the pandemic. In addition to Shopify, other e-commerce pandemic winners such as Amazon, Wayfair, Etsy, eBay, and Chewy are all 40 to 85 percent off their recent peaks as more shoppers return to physical stores, inflation takes a bite out of margins, and higher interest rates usher in lower valuations. Most companies in the e-commerce space have also announced recent layoffs to control costs that ballooned on the back of increased demand during COVID.
Lutke noted that the company had “bet” that e-commerce’s share of total retail spending would permanently leap ahead by several years as the pandemic shifting consumer habits. However, the CEO acknowledged that the “bet didn’t pay off,” and that the company has seen trends return to levels that were expected pre-pandemic as more shoppers return to physical stores. Shopify has a unique insight into e-commerce demand as it makes tools for a wide variety of businesses looking for a digital footprint. The company helps businesses design online stores, sell in different marketplaces, and manage their inventory, payments, and shipping.
Shopify also reported a huge first quarter miss recently, posting earnings of 20¢ versus the analyst’s call of 64¢. Revenue likewise missed, rising 22% to $1.2 billion, but below the estimate for $1.25 billion. Gross merchandise volume came in at $43.2 billion and missed the $46.5 billion expected. Sell-side analysts have also been cutting the price target for the stock amidst a sharper deceleration in growth. The company carried out a 10-for-1 stock split in June, which did not boost the share price as many investors had hoped.
Moreover, Shopify recently announced the $2.1 billion acquisition of logistics company Delivery, which would be the largest deal in the company’s history. The purchase would have a dilutive effect on current shareholders. In its release today, the company said most of the layoffs would come from recruiting and sales positions. Given that management generally tends to reinvest gross profits back into the business, a cut in labor could signal a cut in the profit outlook for the company for fiscal 2022.
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