Shopify stock plunged after the e-commerce firm said it will cut roughly 1,000 workers, or 10% of its global workforce, as its chief executive took responsibility for a faulty growth strategy.
Shopify reported second-quarter earnings early Wednesday.
Shopify's revenue growth has decelerated for five straight quarters as the coronavirus pandemic fades and online shopping normalizes.
SHOP Stock: CEO Takes Responsibility
In a blog, Chief Executive Tobi Lütke took responsibility for over-estimating Shopify's growth.
"We bet that the channel mix — the share of dollars that travel through ecommerce rather than physical retail — would permanently leap ahead by 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 that this was true, we would have to expand the company to match."
He added: "It's now clear that bet didn't pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn't a meaningful 5-year leap ahead. Our market share in ecommerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I'm deeply sorry for that."
Shareholders recently approved Shopify's board of directors' plan to raise Lutke's voting power to 40% from 34%, noted a Wall Street Journal report.
Prior to job cuts, analysts modeled a reacceleration in revenue growth for SHOP stock in 2023, despite worries the U.S. economy will fall into a recession.
Shopify sets up e-commerce websites for businesses and partners with others to handle digital payments and shipping.
Most merchant customers of Shopify target the consumer market. However, Shopify plans a move into business-to-business commerce.
Google A Shopify Partner
Shopify is building a U.S. distribution network to store and ship products for its merchant 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 management's commentary today, we believe it is likely that the company will reduce the pace of its investments through the remainder of the year as expenses are realigned to better match demand."
The majority of layoffs will occur in the recruiting, support and sales units, he said.
One of Shopify's partners is Google-parent Alphabet. Shopify also has teamed with Google's YouTube.
June-quarter earnings for Shopify stock are due early Wednesday. Analysts had projected revenue growth of 19% for SHOP stock, down from 22% in the March quarter.
Will June Quarter Mark A Trough?
Wall Street predict 26% revenue growth in the September quarter and 28% in the December quarter.
That's a big comedown from Shopify's pandemic peak. Its revenue surged 86% in 2020 and 57% in 2021. While growth is expected to slow to 24% this year, consensus estimates call for 29% sales growth in 2023.
"We believe 2023 will be a pivotal year as it relates to early indicators of payoff from strategic growth investments," Truist Securities analyst Terry Tillman said in a second-quarter preview. "The Street and us expect a material growth acceleration into 2023."
Analysts expect Shopify to eke out a profit of 8 cents a share in 2022 and 21 cents in 2023 vs. earnings per share of 64 cents in 2021.
At RBC Capital Markets, analyst Paul Treiber said Shopify's second-quarter revenue may miss analyst estimates. And the company may point to currency exchange rates as a factor, he said in a report. The U.S. dollar has surged.
Shopify stock analyst Mark Mahaney from Evercore ISI also is cautious.
"Based on intra-quarter data points, we view the Street's current Q2 and Q3 revenue estimates as ballpark reasonable, with slightly greater downside variance," Mahaney said.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
