The president of Shopify Inc. said the company was in an “enviable” position, although it continued to lament its misjudgment of growth in the e-commerce market, a move that forced a dramatic number of job cuts on Tuesday.
Harley Finkelstein detailed Wednesday how his Ottawa software company faces a payback after he expected the amount of shopping people do online instead of at brick-and-mortar retailers to permanently jump five or 10 years ahead of pre-pandemic forecasts and hired to meet those expectations.
“We couldn’t know for sure at the time, but we knew that if the forecast came true, we would have to scale the company quickly to meet that future,” he said on a call with analysts.
“Fast forward to now as things have taken a different turn.”
Shopify found that the percentage of spend its merchants saw online was higher than in 2018 before COVID-19 hit the world, but it was lower than the company had planned and resulted in a loss of 1.2 billion US dollars in the last quarter.
“In short, we exceeded our forecast,” Finkelstein said.
“By recalibrating our investments and costs, we’re making sure we’re not sacrificing the components we think are critical to Shopify.”
His remarks come a day after Shopify laid off 10 percent of its staff — roughly 1,000 employees based on the company’s headcount of 10,000 in 2021.
The layoff, which CEO and founder Toby Luttke took responsibility for, was blamed on Shopify’s miscalculations and weighed heavily on its already depressed share price, which fell 14 percent by Tuesday’s market close.
Amid a broad market selloff that hit the tech sector hardest, Shopify’s share price has fallen more than 78 percent from its late-2021 peak of $222.87.
It closed at $45.17, up 11%, or $4.48, on Wednesday.
But Shopify is confident it can turn things around, even though its chief financial officer warned on the same call as Finkelstein that inflation is near a 40-year high and is changing shopping habits.
Consumers are already favoring discount retailers and cutting back on spending across many categories, a trend expected to continue into 2022, Amy Shapero said.
“Our teams are mindful of the macro environment and rigorously assess and adjust our spending priorities,” she said.
That process began with a workforce review that slowed down hiring between Shopify’s first and second quarters while identifying areas where Shopify could “improve our operations and team” and thereby make layoffs.
The company will continue to slow hiring in 2022 and end the year with a “modest” number of employees, Shapero said.
It’s hard to say what the natural size of a company’s workforce should be, but Shopify isn’t interested in linear headcount growth, Lutke added.
He admitted that the firing taught him why many company leaders are wary of making the big bets on which Shopify depends for its business.
“Mathematically, they make a lot of sense,” he said. “Obviously you have to take a 20 percent chance of a 10x increase, but when they don’t work, they have to be somewhat of a public thing.”
Lutke’s discounts came after Shopify revealed it lost $1.2 billion, or 95 cents a diluted share, in its second quarter, compared with a profit of $879.1 million and 69 cents a diluted share. value a year earlier.
The company said the loss for the period ended June 30 included a $1 billion net unrealized loss on equity and other investments and an approximately $800 million net unrealized gain on equity and other investments.
Shopify, which is reported in U.S. dollars, said its second-quarter adjusted net loss was $38.5 million, or three cents a 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 from $1.12 billion in the year-ago quarter.
The company said its third-quarter adjusted operating loss, excluding severance costs, is likely to widen in the second quarter and that it will experience a loss in the fourth quarter.
“Shopify has been too aggressive, rising operating costs, emerging from COVID-19 and adjusting to the realities of a post-COVID-19 e-commerce environment are proving noisy and disruptive,” ATB Capital Markets’ Martin Toner said in a note to investors.
This report by The Canadian Press was first published on July 27, 2022.
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