Shopify is laying off staff, but hasn’t cut marketing, advertising and R&D costs

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Shopify made headlines last month when it announced it would lay off 10% of its workforce – a move that saw shares tumble 14% as former employees publicly get new roles and lackluster earnings at second trimester.

Shopify, a Canadian e-commerce platform that offers solutions for small businesses to sell goods and services online, had more than 10,000 employees as of December 31, 2021, according to a securities filing.

The company drew anger last month for firing 10% of its workforce over email, a move deemed unprofessional and shocking by a number of commentators.

CEO Tobi Lutke announced the layoffs in a memo to staff last month, citing his misjudgment on the duration of the pandemic-induced e-commerce boom.

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“As the COVID pandemic took hold, almost all retail businesses moved online due to shelter-in-place orders. Demand for Shopify has skyrocketed,” he told staff via email.

An uncertain macro climate has seen an abundance of tech companies report hiring slowdowns, freezes, reneged offers and layoffs. Facebook’s parent company Meta and Alphabet Inc. both recently announced plans to cut hiring, and Netflix has made layoffs in recent months.

Shopify’s layoffs have been so widely publicized that many companies have taken to LinkedIn to support newly unemployed staff, publicly lavishing offers and announcing plans to reclaim former Shopify employees.

Caroline Dohrmann, a former Shopify content manager, was one of many ex-employees who gave updates on their journey via LinkedIn, reporting potential employers flooding their inboxes and looming conversations with recruiters.

Dorhmann posted two weeks ago: “As of yesterday I have 25 job postings in my inbox. By next Wednesday, I have a total of 7 interviews. Within a week. Unbelievable.”

The immediate aftermath of the layoff note was seen in the rapid drop in Shopify’s stock price – shares fell 14% after the announcement.

Shopify’s operations, share price and profitability saw a sharp acceleration at the start of the pandemic – the Census Bureau’s 2020 Annual Retail Survey showed e-commerce sales increased by 43 % to reach $815.4 billion, compared to 14.3% in 2019.

Declining consumer spending continued to impact Shopify – in its Q1 2022 report, Shopify forecast revenue growth to be weaker in the first half as it navigates a challenging economic climate. pandemic era.

“Unless Shopify adds about twice as many merchants in the second half of 2022 as it did in the first half, we estimate they could be on track to see the lowest net merchant additions in a year for at least 2018,” YipitData analysts said.

Anticipation of slowing inflation raised brief hopes of a strong earnings season, but Shopify’s second-quarter results, released last week, disappointed investors.

Total revenue in the second quarter increased 16% year over year to $1.3 billion, representing a three-year compound annual growth rate of 53%. This is a notable decline from the company’s 57% growth in Q2 2021.

Shopify reported an adjusted net loss of $38.5 million compared to adjusted net income of $284.6 million in the second quarter of 2021.

Operating loss for the second quarter of 2022 was $190.2 million, or 15% of revenue, compared to revenue of $139.4 million, or 12% of revenue, for the comparable period ago a year – despite a revenue slowdown, Shopify did not cut back on marketing, advertising, and R&D costs.

Consumers seem eager to take their cash in store, and given that post-pandemic trends show no signs of slowing down, Shopify could be vulnerable to even bigger losses in the third quarter.

Shopify shares are down about 70% year-to-date. Continued pressures on household spending and discretionary income around the world could end up threatening Shopify’s second-half results.

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