(Bloomberg) — Canadian e-commerce firm Shopify Inc. will cut about 10% of its workforce Tuesday, as Chief Executive Officer Tobi Lutke acknowledged the company’s decision to expand rapidly coming out of the Covid-19 pandemic didn’t pay off.
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The move will eliminate about 1,000 jobs out of 10,000 or so total employees at Shopify. Most of the affected roles are in recruiting, support and sales, Lutke said in a memo posted on the company’s website.
Shopify tumbled as much as 17% to $30.55, the biggest intraday drop in almost three months. The Wall Street Journal reported the job cuts earlier Tuesday.
“We bet that the channel mix — the share of dollars that travel through e-commerce rather than physical retail — would permanently leap ahead by five or even 10 years” because of the pandemic, Lutke wrote.
“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.”
Shopify was among the hottest pandemic stocks in 2020 and 2021 as online shopping boomed. It came crashing down this year, hampered by an economic cool-down and an easing of Covid-19 restrictions. Shopify shares have fallen 73% this year as of Monday’s close.
The Ottawa-based company reported a huge profit miss in the first quarter, and analysts have cut their expectations for the second quarter results, which are scheduled for Wednesday.
The move boosts the likelihood that Shopify will lower its full-year outlook, according to RBC Capital Markets analyst Paul Treiber. During first-quarter results in May, the company said it had expected merchants to join its platform at the same rate as in 2021.
“Since Shopify reinvests all the gross profit that it generates back into the business, the reduction of headcount increases the likelihood that the company reduces its FY22 outlook,” Treiber said in a note to clients.
Analysts expect $1.33 billion in revenue for the period ended June 30, up just 11% from the first quarter.
For those losing jobs this week, Shopify will pay at least 16 weeks of severance and extend additional benefits, including an allowance to buy laptops and temporary coverage of home internet costs, a spokeswoman for the company said.
(Updates with analyst commentary starting in the eighth paragraph.)
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