Shopify Inc.’s president is arguing the company is in an “enviable” position, even as it continues to express regret over misjudging the growth of the e-commerce market – a move that forced a dramatic number of job cuts Tuesday.
Harley Finkelstein detailed on Wednesday how his Ottawa software company has been facing a reckoning after it anticipated the amount of shopping people carry out online, instead of at brick-and-mortar retailers, would permanently leap ahead by five or 10 years from pre-pandemic predictions and hired to meet those expectations.
“We couldn’t know for sure at the time, but we did know 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 has found the rate of spend its merchants see online is higher than in 2018, before COVID-19 struck the globe, but is lower than what the company planned for and resulted in a US$1.2 billion loss in its most recent quarter.
“In short, we overshot our prediction,” Finkelstein said.
“Recalibrating our investments and spending, we are making sure we do not sacrifice the components we feel are critical for Shopify.”
His remarks come a day after Shopify laid off 10 per cent of staff – roughly 1,000 employees based on the company’s 2021 head count of 10,000.
The layoff, which CEO and founder Tobi Lutke took responsibility for, was blamed on Shopify’s miscalculation and heavily weighed on its already depressed share price, which dropped 14 per cent by Tuesday’s market close.
Amid a broad market sell-off that has most affected the tech sector, the price of Shopify’s stock has fallen by more than 78 per cent since its late 2021 peak of $222.87.
But Shopify is confident it can turn things around, despite its chief financial officer warning on the same call as Finkelstein that inflation is at a near 40-year high and shifting shopping habits.
Consumers are now favouring discount retailers and reducing their spending on many categories, a trend expected to persist throughout 2022, Amy Shapero said.
“Our teams are mindful of the macro environment and have been rigorously evaluating and adjusting our spending priorities,” she said.
That process began with a workforce review that slowed hiring between Shopify’s first and second quarter, while also identifying areas where Shopify could “improve our operations and team” and thus carry out layoffs.
The company will continue slowing hiring in 2022 and end the year with a “modest increase” in headcount compared to where it stood at the end of 2021, Shapero said, factoring in the recent acquisition of a logistics company.
It’s hard to say what the natural size of the company’s workforce should be, but Shopify is not interested in linear head count growth, Lutke added.
He conceded the layoff had taught him about why many company leaders are careful around making big bets like Shopify has hinged its business on.
“Mathematically, they make a lot of sense,” he said. “Obviously, you ought to take a 20 per cent chance at a 10 x increase, but when they don’t work, they have to be a somewhat public thing.”
Lutke’s concessions came as Shopify revealed it lost US$1.2 billion or 95 cents per diluted share in its 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 US$1 billion net unrealized loss on equity and other investments and a roughly US$800 million net unrealized gain from equity and other investments.
Shopify, which reports in U.S. dollars, says 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 in 2021.
Revenue increased 16 per cent to US$1.3 billion, up from US$1.12 billion in the prior year quarter.
— with files from Global News’s Craig Lord
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