Shopify lays off staff, but hasn’t cut back on marketing, advertising and R&D costs

Shopify made headlines last month when it announced it would layoff 10% of its workforce – a move which saw shares sink 14%, ex-employees publicly scoring new roles, and mediocre Q2 earnings.

Shopify, a Canadian ecommerce platform that offers solutions for small businesses to sell goods and services online, had more than 10,000 employees as at Dec. 31 2021, according to a securities filing.

The company drew ire last month for sacking 10% of its workforce through email, a move deemed unprofessional and jarring by a number of commentators.

CEO Tobi Lutke announced the layoffs in a memo to staff last month, citing his misjudgment at how long the pandemic-induced ecommerce boom would last.

“When the COVID pandemic set in, almost all retail shifted online because of shelter-in-place orders. Demand for Shopify skyrocketed,” he told staff via email.

An uncertain macroeconomic climate has seen an abundance of tech companies report hiring slowdowns, freezes, reneged offers and layoffs. Facebook parent company Meta and Alphabet Inc. have both recently announced their intentions to cut back on hiring, and Netflix has made layoffs in recent months.

The Shopify layoffs were so widely publicised that many companies rallied on LinkedIn to support the newly unemployed staff, publicly lavishing offers and announcing plans to claim ex-Shopify employees.

Caroline Dohrmann, an ex-Shopify content manager was one of many ex-employees who updated on their journey through LinkedIn, reporting potential employers flooding their inboxes and imminent conversations with recruiters.

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

The immediate aftermath of the layoff memo was seen in Shopify’s rapidly tumbling share price – shares sunk 14% after the announcement.

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

Declines in consumer spending have continued to impact Shopify – in its Q1 2022 report, Shopify forecast that revenue growth would be lower in the first half of the year, as it navigates a tough pandemic-era climate.

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

Anticipation that inflation could cool down prompted brief hopes of a strong earnings season – but Shopify’s Q2 results, released last week, disappointed investors.

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

Shopify reported an adjusted net loss of $38.5 million compared to an adjusted net income of $284.6 million in Q2 2021.

Operating loss for the second quarter of 2022 was $190.2 million, or 15% of revenue, versus income of $139.4 million, or 12% of revenue, for the comparable period a year ago – despite a slowdown in revenues, Shopify hasn’t cut back on marketing, advertising and R&D costs.

Consumers seem keen to take their dollars in-store, and given that post-pandemic trends aren’t indicating any signs of slowing down, Shopify may be vulnerable to even broader losses in Q3.

Shopify stocks are down by approximately 70% in the YTD. Continued pressures on household spending and discretionary income around the world may wind up posing a threat to Shopify’s H2 results.


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