The chairman of Shopify Inc. argues that the company is in an “enviable” position, even as he continues to regret misjudging the growth of the e-commerce market, a move that forced a slew of job cuts on Tuesday.
Harley Finkelstein detailed on Wednesday how his Ottawa software company is facing a reckoning after it anticipated that the amount of purchases people make online, rather than in brick-and-mortar stores, would permanently jump five to 10 years earlier. of the pandemic. predictions and hired to meet those expectations.
“We couldn’t be sure at the time, but we knew if the prediction came true, we would have to quickly 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 spend rate its merchants see online is higher than it was in 2018, before COVID-19 hit the world, but lower than the company planned and resulted in a US$1.2 billion loss in your most recent quarter.
“In short, we beat our prediction,” Finkelstein said.
“By recalibrating our investments and spending, we make sure we’re not sacrificing components we feel are critical to Shopify.”
His comments come a day after Shopify laid off 10 percent of staff, roughly 1,000 employees based on the company’s 10,000-employee count in 2021.
The firing, for which CEO and founder Tobi Lutke took responsibility, was blamed on Shopify’s miscalculation and heavily affected its already depressed stock price, which fell 14 percent at the close of trading on Tuesday. .
Amid a broad market sell-off that has hit the tech sector hardest, Shopify’s stock price has fallen more than 78 percent from its high of $222.87 in late 2021.
It closed at $45.17, up 11 percent or $4.48, on Wednesday.
But Shopify is confident it can turn things around, even though its CFO warned on the same call as Finkelstein that inflation is at a nearly 40-year high and shopping habits are changing.
Consumers are now favoring discount retailers and cutting back on spending in many categories, a trend that is expected to persist through 2022, said Amy Shapero.
“Our teams are aware of the macro environment and have been rigorously evaluating and adjusting our spending priorities,” he said.
That process began with a workforce review that slowed hiring between the first and second quarters of Shopify, while also identifying areas where Shopify could “improve our operations and team” and thus carry out layoffs.
The company will continue to cut hiring in 2022 and will end the year with a “modest” employee count, Shapero said.
It’s hard to say what the natural size of the company’s workforce should be, but Shopify isn’t interested in linear growth in the number of employees, Lutke added.
He admitted that the firing had taught him why many company leaders are careful about making big bets as Shopify has based its business.
“Mathematically, they make a lot of sense,” he said. “Obviously, you have to have a 20 percent chance of a 10-fold increase, but when they don’t work, they have to be public.”
Lutke’s concessions came as Shopify revealed that it lost $1.2 billion or 95 cents per diluted share in its second quarter, compared with a profit of $879.1 million and 69 cents per diluted share a year earlier.
The company said the loss for the period ended June 30 includes an unrealized net loss of $1 billion on shares and other investments and an unrealized net gain of approximately $800 million on shares and other investments.
Shopify, which reports in US dollars, says its adjusted net loss for the second quarter was $38.5 million, or three cents per diluted share, compared with a profit of $284.6 million, or 22 cents. per diluted share in 2021.
Revenue increased 16% to $1.3 billion, compared to $1.12 billion in the prior year quarter.
The company shared that its third quarter adjusted operating loss, excluding severance costs, will likely increase during the second quarter and that its fourth quarter will see a loss.
“Shopify was too aggressive with increasing operating expenses, coming out of COVID-19 and adapting to the realities of a post-COVID-19 e-commerce environment is proving to be noisy and disruptive,” said Martin Toner of ATB Capital Markets, in a note. to investors
This report from The Canadian Press was first published on July 27, 2022.