Shares of Shopify plunged after the e-commerce company announced it would cut about 1,000 employees, or 10% of its global workforce, as its chief executive took responsibility for a flawed growth strategy. Including Tuesday’s loss, SHOP’s stock is down more than 80% this year.
Shopify’s revenue growth has slowed for four straight quarters as the coronavirus pandemic wanes and online shopping normalizes.
Shopify’s CEO takes responsibility
In a blogCEO Tobi Lütke took responsibility for overestimating Shopify’s growth.
“We bet the channel mix – the share of dollars flowing through e-commerce rather than brick-and-mortar retail – would make a permanent jump in 5 or even 10 years,” Lutke wrote. “We couldn’t know for sure at the time, but we knew that if there was any chance it was true, we had to expand the business accordingly.”
He added: “It’s now clear that the bet didn’t pay off. What we’re seeing now is that the mix is getting back to roughly where the pre-Covid data would have suggested it should be. at this point. Still growing steadily, but it wasn’t a significant 5-year leap forward. Our market share in e-commerce is much higher than in retail, so that’s important. In the end placing this bet was my call to make and I was wrong Now we have to adjust As a result we have to say goodbye to some of you today and I am deeply of that sorry.”
Before the job cuts, analysts had modeled a further acceleration in SHOP stock revenue growth in 2023, despite fears that the US economy could slide into recession.
Shopify sets up e-commerce websites for businesses and partners with others to handle digital payments and shipping.
Most of Shopify’s merchant customers target the mainstream market. However, Shopify plans to move to business-to-business commerce.
Google a Shopify Partner
Shopify is building a US fulfillment network to store and ship products for its merchant customers. The company recently completed its purchase of fulfillment operator Deliverr for $2.1 billion.
At Stifel, analyst Scott Devitt said in a report: “Given management’s comments today, we believe it is likely that the company will reduce the pace of its investments over the remainder of the year, as spending is realigned to better match demand.”
The majority of layoffs will occur in recruiting, support and sales units, he said.
One of Shopify’s partners is Google-parent Alphabet (GOOGL). Shopify has also partnered with Google’s YouTube.
June quarter results for Shopify stocks are expected early Wednesday. Analysts had forecast revenue growth of 19% for SHOP shares, compared to 22% in the March quarter.
Will the June quarter mark a low?
Wall Street forecasts revenue growth of 26% in the September quarter and 28% in the December quarter.
This is a big throwback from Shopify’s pandemic peak. Its revenue jumped 86% in 2020 and 57% in 2021. While growth is expected to slow to 24% this year, consensus estimates call for sales growth of 29% in 2023.
“We believe 2023 will be a pivotal year for early profitability indicators of strategic growth investments,” Truist Securities analyst Terry Tillman said in a second-quarter preview. “The Street and we expect a material acceleration in growth through 2023.”
Analysts expect Shopify to earn 8 cents per share in 2022 and 21 cents in 2023 versus 64 cents per share in 2021.
At RBC Capital Markets, analyst Paul Treiber said Shopify’s second-quarter revenue could miss consensus estimates. And the company may cite exchange rates as a factor, he said in a report. The US dollar surged.
Evercore ISI analyst Mark Mahaney is also cautious.
“Based on intra-quarter data points, we consider Street’s current revenue estimates for the second and third quarters to be reasonable, with slightly greater downside variance,” Mahaney said.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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