Shopify lays off 10% of workforce: CEO
Canadian tech giant Shopify Inc. laid off 10 per cent of its workforce Tuesday after what its chief executive Tobi Lütke called a failed bet that e-commerce growth would continue along a loftier, pandemic-fuelled trajectory.
In a blog post on Shopify’s website, Lütke said the cuts, in which approximately 1,000 employees were let go, primarily affect people in recruiting, support and sales, as well as “some groups that were convenient to have but too far removed from building products.” He said the teams left are now either focused on building products or directly supporting those who do.
The Ottawa-based company saw a surge in e-commerce growth during the height of the pandemic as COVID-19 lockdowns forced people to shop online, pushing the company to invest to keep pace. Executives expected the surge to be permanent, but growth has since fallen back to pre-COVID trendlines, Lütke said.
“Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that,” Lütke said in the post, adding that the company will offer a “generous severance package” to those affected, including 16 weeks of severance pay, an additional week for every year of tenure at Shopify, removal of any equity cliff and extension of medical benefits.
Lütke, who founded Shopify in 2006, said executives thought the company had to expand to match what they expected would be a five or 10-year leap ahead in e-commerce growth. Instead, consumers are now returning to physical retail stores, reverting to previous shopping trends.
The e-commerce company announced an emphasis on remote work in May 2021, in order to broaden out its talent pool. Its career page at the time said it can employ people directly in countries where it has a legal entity established, and may be able to hire people as contractors in countries where it does not.
“Most of the adaptations we’ve had to make have been to grow into something bigger. This time we grow into something more focused, more driven, and more singular in mission,” Lütke said Tuesday.
Shopify shares plunged more than 15 per cent to US$31.12 in New York after the opening bell Tuesday morning. The shares were already down 73 per cent for the year as of Monday’s close.
The company has continued to see its stock tumble since losing its title as Canada’s biggest publicly traded company at the beginning of the year. Its share price surged more than 58 per cent between March 2, 2020 and May 6, 2020, when its market capitalization reached $121 billion, unseating Royal Bank of Canada as the most valuable company on the Toronto Stock Exchange. Shopify has since fallen down that list.
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Analysts have also cut their expectations for the company’s upcoming earnings call.
ATB Capital Markets Inc. cut its estimated target price to $95 per share from $110, while maintaining an “outperform” rating on the stock
Analyst Martin Toner reduced his operating expense estimates to $2.8 billion for 2022 following news of the layoffs and said he expects Shopify to still roughly break even on an operating cash flow basis. He forecasts the employee cuts would eliminate $100 million to $150 million in the company’s cash costs.
Toner, however, also lowered his revenue forecast by $50 million and gross merchandises volume (GMV) estimate by five per cent, pointing to Lütke’s letter indicating lower revenue than the company had anticipated.
“Last quarter, Shopify called out the impact inflation was having on the discretionary goods its merchants sell as a headwind. That issue has likely only intensified,” Toner said.
The company will report its second quarter earnings on Wednesday, before markets open.
With additional reporting from Reuters, Bloomberg