Shopify’s president says the company is in an “enviable” position, though it continues to express regret that it misjudged the growth of the e-commerce market – a move that forced it to announce a significant number of layoffs on Tuesday.
Posted at 5:35 p.m.
Harley Finkelstein detailed on Wednesday how the Ottawa software company was held to account after predicting the number of purchases people make online, rather than in physical stores, would jump five or ten years permanently. compared to before the pandemic – and after hiring to meet those expectations.
“We couldn’t know for sure at the time, but we knew that if that prediction came true, we would have to quickly scale the business to meet that future,” he explained during a briefing. conference call with analysts.
“And then, here we are, when things happened differently. »
Shopify found that the spend rate its merchants are seeing online is higher than in 2018, before COVID-19 hit the world, but lower than the company had expected, which which notably led to a loss of US$1.2 billion in its last completed quarter.
“In short, we went too far with our forecast,” Mr. Finkelstein admitted.
“By recalibrating our investments and spend, we’re making sure we’re not sacrificing the components that we believe are essential for Shopify. »
His remarks come a day after Shopify announced it was laying off 10% of its staff – or about 1,000 employees considering the company’s workforce was 10,000 in 2021.
The layoffs, for which CEO and founder Tobi Lütke took responsibility, were blamed on Shopify’s miscalculation and weighed heavily on its already depressed share price. It fell 14% during Tuesday’s session.
Amid several months of widespread divestment in the technology sector of the stock markets, Shopify’s stock price has fallen more than 78% since hitting a high of $222.87, at the end of 2021.
The stock closed Wednesday at $45.17, up $4.48, or 11%, on the Toronto Stock Exchange.
But Shopify is confident it can turn the tide, even though its chief financial officer reminded on the earnings conference call that inflation was at its highest level in nearly 40 years and the habits of purchase changed.
Consumers are now favoring discount retailers and cutting back on spending across many categories, a trend that’s expected to persist through 2022, Shapero said.
“Our teams are aware of the macroeconomic environment and have rigorously assessed and adjusted their spending priorities,” she continued.
The natural size of the workforce
This process began with a workforce review, which slowed hiring between Shopify’s first and second quarters, while identifying areas where Shopify could “improve [ses] activities and [son] team” and thus proceed to layoffs.
The company will continue to slow hiring in 2022 and end the year with a “modest” workforce, Ms.me Shapero.
It’s hard to say what the natural size of the company’s workforce should be, but Shopify isn’t interested in linear headcount growth, Lütke added.
He admitted the layoffs taught him why many business leaders are cautious about making big bets like the one Shopify has relied on to guide its business.
Shopify said it lost $1.2 billion, or 95 cents per share, for its most recent quarter, compared to a profit of $879.1 million, or 69 cents per share, in the same period last year. last.
The most recent quarter loss included an unrealized loss of US$1 billion on equity and other investments, while the second quarter 2021 result included an unrealized gain of approximately US$800 million on equity and other investments.
Excluding one-time items, Shopify’s loss was $38.5 million, or 3 cents per share, in the most recent quarter, which compared to a profit of $284.6 million, or 22 US cents per share, a year earlier.
Revenue for the three months ended June 30 increased 16% to $1.3 billion from $1.12 billion in the second quarter of last year.
The company predicted that its third-quarter adjusted operating loss, excluding severance, would likely increase from the second quarter and that Shopify would incur a loss in the fourth quarter.
“Shopify was overly aggressive in its operating expense growth coming out of COVID-19, and adapting to the realities of a post-COVID-19 e-commerce environment is proving to be tumultuous and disruptive,” he said. analyst Martin Toner, of ATB Capital Markets, in a note to investors.