Canada’s Shopify Inc (SHOP.TO) said on July 27 that it plans to cut its spending and headcount after a surprise quarterly loss as cost-conscious consumers scale down on online purchases, causing its batter shares to climb 5%.
The company on Tuesday laid off 10% of its staff while Chief Executive Tobi Lutke supported bets that a move to online shopping would continue after the pandemic did not pay off. The pledge to cut costs comes as Shopify expects adjusted operating losses for the second half of the year, predicting it to reduce in the all-important holiday sales quarter.
President Harley Finkelstein said in an interview:
“We overshot that (retail spending on e-commerce) prediction and we are recalibrating. We are conducting a far more rigorous review of our operations and our teams.”
After registering sharp growth during the pandemic, Shopify invested massively to build its business and fulfillment network, including a $2 billion takeover of Deliverr, to help merchants deliver goods on time.
That came just as inflation shot up to decades high and online shopping growth dampened with more shoppers going back to brick-and-mortar stores for essential purchases.
Richard Tse, an analyst with National Bank Financial, stated:
“They did a good job on their conference call laying out their plans for the future… I think the market is beginning to recognize… that their reported and future growth is still much higher than the market.”
Shopify still believes its gross merchandise volume (GMV) growth will outshine the wider retail market.
On an adjusted basis, Shopify posted a loss of 3 cents per share for the second quarter, while analysts on average had forecast a profit of 2 cents. However, revenue jumped by 16% to $1.3 billion, in agreement with an estimate of $1.33 billion, according to Refinitiv IBES data.