Shopify Tumbles On Wider Net Loss In Q2 2023

Shopify Inc. (TSX: SHOP) surpassed revenue expectations in the second quarter with a remarkable 31% increase to US$1.7 billion, compared to the previous year’s US$1.3 billion. This revenue surge outperformed the average analyst estimate of US$1.62 billion.

However, the Ottawa-based e-commerce giant also reported a widened net loss of US$1.3 billion, or US$1.02 per share, for the quarter ending June 30, 2023, which was higher than the anticipated loss of US$0.04 per share. In the same period last year, the loss stood at US$1.2 billion, or US$0.95 per share.

Following the release of the financial results, Shopify’s stock experienced a temporary setback, falling nearly 7% on the Toronto Stock Exchange, closing at $83.39. Nevertheless, the American-listed shares recovered much of that loss in after-hours trading.

These results highlight a transitional period for Shopify as the company repositions itself. In the previous quarter, Shopify abandoned its long-held fulfillment and freight strategy, part of its effort to compete with Inc. The company also downsized its workforce by over 20%, less than a year after a previous round of layoffs.

“We’re not just shipping products faster, but we are also expanding our global merchant base,” said the firm’s president, Harley Finkelstein.

Additionally, Shopify implemented price increases for some of its plans, which took effect in January and April.

Shopify’s CEO, Tobias Lütke, referred to the logistics arm as a “side quest” that distracted the company from its main mission. The focus now is on providing the best possible solutions for merchants, embracing advancements in artificial intelligence technology, and making more strategic investments.

One significant development was Shopify’s divestiture of its logistics business to San Francisco startup Deliverr Inc. Furthermore, the company recently announced the introduction of a suite of new AI products and features.

However, the recalibration incurred a US$1.7 billion charge related to the divestiture and severance pay from staff cuts, contributing to an overall operating loss of US$1.6 billion. The chief financial officer, Jeff Hoffmeister, explained these costs during a conference call with analysts, as Lütke was absent from the call.

Despite multiple rounds of layoffs over the last year, management compensation at Shopify appears to have been largely unaffected.

In a regulatory filing made in May, Shopify revealed that Lutke collected just over $20.0 million in total compensation in 2022, on par with the $20.0 million he collected in 2021, and an increase over the $15.1 million he made in 2020.

Recently, a Shopify employee broke their non-disclosure agreement to shed light on the company’s controversial actions and strategic direction. The thread exposed a series of events starting from the first quarter of 2022 when Shopify promised job security to its staff, only to carry out massive layoffs in July of the same year.

These job cuts, according to the employee, were driven not merely by a CEO’s misguided “bet,” but rather a shift towards replacing full-time employees with cheaper contract labor and an increased reliance on artificial intelligence support.

Despite these challenges, analysts acknowledge that Shopify is beginning to benefit from its more focused approach. The company experienced a significant increase in profitability with a relatively small decline in revenue. Additionally, Shopify has gained traction with larger customers, integrating well into their e-commerce vision.

In the second quarter, Shopify’s gross merchandise volume reached US$55 billion, a 17% increase compared to the previous year, attributed to expanding sales made through its platform.

Shopify’s subscriptions-related revenue also saw a 21% year-over-year growth, reaching US$444 million in Q2. The increase was a result of more merchants joining the platform and a pricing adjustment implemented in April.

Looking ahead to the third quarter, Shopify foresees revenue growth in the “low-twenties” percentage range, and when adjusted for changes related to the divestiture of its logistics business, they anticipate growth in the “mid-twenties.” These projections outpace analysts’ initial expectations of 17.2% growth.

Information for this briefing was found via The Globe And Mail, Reuters, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply