Shopify 'Overshot Our Prediction,' Cuts 10% of Workforce

Shopify “overshot our prediction” that the share of dollars going through e-commerce vs. physical retail “would permanently leap ahead” following COVID-19 pandemic trends, said President Harley Finkelstein on the company’s Q2 earnings call Wednesday.

“During the pandemic, we made a bet that retail spend would disproportionately favor e-commerce at a much higher pace than it has,” Finkelstein said. Shopify “built for the digital leap” and expanded the company to scale “to meet that future,” but “things have turned out differently.” Though online spending has reset higher than it was in 2019, “the rate is lower than we had planned for,” and the company is “recalibrating our investments and spending,” he said.

Shopify's Q2 revenue grew 16% year on year to $1.3 billion. It swung to a net loss of $1.2 billion vs. net income of $900 million in Q2 2021, said the financial release. Operating loss was $845.9 million vs. operating income of $481.4 million in the year-ago quarter. Shares rose 11.7% Wednesday to close at $35.24.

After slowing the number of employee additions in Q2 vs. Q1, Shopify cut 10% of its workforce Tuesday “to ensure we have an efficient, productive, and highly motivated team,” said Chief Financial Officer Amy Shapero. For the rest of 2022, “slow hiring” will be limited to “only the most strategic.” After buying Deliverr in July, Shopify will exit the year with a “modest increase” in headcount from the start of the year, she said.

Shopify grew adjusted operating income over the past five years but expects 2022 “will end up being different, more of a transition year, in which ecommerce has largely reset to the pre-COVID trend line and is now pressured by persistent high inflation,” Shapero said. “We expect our multi-channel superpowers and strong value proposition will continue to help our merchants in this environment, and we are excited about our critical investments, like Deliverr, that we believe will position us well for the future of commerce."

Finkelstein outlined initiatives the company is taking to help customers “build buyer relationships, go global, grow from first scale to full scale and simplify logistics.” He cited growth in offline gross merchandise value (GMV) on Shopify for merchants that use its Pro point-of-sale software; Q2 offline GMV grew 47% year on year, he said.

“With the vast majority of all commerce in North America happening offline, the investments we are making in Shopify point-of-sale this year will increase its scalability to handle a much greater number of stores, deepen integration with more third-party apps and further improve our hardware,” Finkelstein said.

Finkelstein outlined opportunities to connect brands with consumers across digital services via Shopify’s native checkout integrations with Facebook, Google and Instagram. The company announced Twitter Shopping in June and a YouTube shopping channel last week, which allows merchants to add a store tab to their YouTube channel and tag products during a livestream with picture in picture. Customers can check out while watching the stream.

Shopify is hoping to simplify logistics across freight, distribution and fulfillment for merchants via the Shopify Fulfillment Network (SFN), Finkelstein said. It has a pilot program with Flexport to help them inbound freight and ship inventory “at the pallet level vs. container level” and have just-in-time access to containers that deliver goods directly to an SFN hub. Merchants can expect service from the origin port up to 50% faster and at a lower-than-average cost, he said.

The shopping platform company closed its Deliverr acquisition in July and will use the company’s capabilities to unpack, scan and inspect inventory at its Atlanta hub warehouse to help expand two-day delivery across SFN, Finkelstein said. Shopify fulfills over 1 million orders per month and is around 10% of all e-commerce in the U.S., he said.