Shopify shares fell after the e-commerce company said it will cut roughly 1,000 jobs, or 10% of its global workforce, as its chief executive took responsibility for a flawed growth strategy. Including Tuesday’s loss, SHOP shares are down more than 80% this year.
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Shopify ( SHOP ) was down 14.7% as of 9:30 a.m. on the stock market today. The beleaguered e-commerce company reports second-quarter earnings early Wednesday.
Shopify’s revenue growth has slowed for four straight quarters as the coronavirus pandemic fades and online shopping normalizes.
Shopify’s CEO takes responsibility
In a blog, CEO Tobi Lütke took responsibility for overestimating Shopify’s growth.
“We bet that the channel mix, the share of dollars traveling through e-commerce as opposed to brick-and-mortar retail, would permanently advance 5 or even 10 years,” Lutke wrote. “We couldn’t know for sure at the time, but we knew that if there was a chance this was true, we would have to scale the company to match.”
He added: “It’s now clear that the bet didn’t pay off. What we see now is that the mix is back to roughly where the pre-Covid-1 data would have suggested it should be at this point. It’s still growing consistently, but it wasn’t a significant jump from 5 years ahead. Our market share in e-commerce is much higher than in retail, so that matters. Ultimately, making this bet was the my call and I was wrong. Now, we have to adjust. As a result, we have to say goodbye to some of you today and I’m very sorry.”
Before the job cuts, analysts modeled a reacceleration in SHOP’s stock revenue growth in 2023, despite concerns that the U.S. economy will slip into recession.
Shopify sets up e-commerce websites for businesses and partners with others to handle digital payments and shipping.
Most of Shopify’s business customers target the consumer market. However, Shopify is planning a move into business-to-business commerce.
Google A Shopify Partner
Shopify is building a distribution network in the United States to stock and ship products for its retail customers. The company recently closed its purchase of fulfillment operator Deliverr for $2.1 billion.
At Stifel, analyst Scott Devitt said in a report: “Given today’s management commentary, we believe the company is likely to reduce the pace of its investments for the remainder of the year as that expenditures are made to better match demand.”
Most of the layoffs will be 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 TouTube.
June quarter earnings for Shopify stock are due early Wednesday. Analysts had forecast 19% revenue growth for SHOP stock, down from 22% in the March quarter.
Will the June quarter mark a trough?
Wall Street expects revenue growth of 26% in the September quarter and 28% in the December quarter.
That’s a big drop from Shopify’s pandemic peak. Its revenue rose 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 key year in terms of early indicators of profitability from strategic growth investments,” Truist Securities analyst Terry Tillman said in a second-quarter preview. “The street and we expect a material acceleration of growth until 2023.”
Analysts expect Shopify to post earnings of 8 cents per share in 2022 and 21 cents in 2023, compared with earnings per share of 64 cents in 2021.
At RBC Capital Markets, analyst Paul Treiber said Shopify’s second-quarter revenue may miss consensus estimates. And the company can point to exchange rates as a factor, he said in a report. The US dollar has risen.
Evercore ISI analyst Mark Mahaney is also cautious.
“Based on intra-quarterly data points, we view the Street’s current Q2 and Q3 revenue estimates to be reasonable, with a slightly larger 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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