Shopify stock fell after the e-commerce company said it would cut nearly 1,000 workers, or 10% of its global workforce, as its CEO took responsibility for a faulty growth strategy. Including Tuesday’s loss, SHOP’s stock is down more than 80% this year.
Shopify (SHOP) is down 14.7% to 31.30 in morning trading in the stock market today. The beleaguered e-commerce company reported second-quarter earnings early Wednesday.
Shopify’s revenue growth has slowed for four straight quarters as the coronavirus pandemic fades and online shopping returns to normal.
Shopify CEO takes responsibility
In a blog post, CEO Toby Lutke took responsibility for overestimating Shopify’s growth.
“We bet the channel mix — the share of dollars traveling through e-commerce rather than physical retail — permanently leaping forward 5 or even 10 years,” Luttke wrote. “We didn’t know for sure at the time, but we did know that if there was a chance that this was true, we would have to expand the company to match.”
He added: “Now it’s clear that the bet hasn’t paid off. What we’re seeing now is the mix returning roughly to where the pre-Covid data was suggesting it should have been at this point. It’s still growing steadily, but it wasn’t a meaningful jump for 5 years.” Forward. Our market share in e-commerce is much higher than it is in retail, so this is important. Ultimately, placing this bet was my call to do so and I got this wrong. Now, we have to adjust. As a result, we have to We are saying goodbye to each other today and I am deeply sorry for that.”
Before the job cuts, analysts modeled to reaccelerate revenue growth for SHOP stock in 2023, despite fears that the US economy could fall into recession.
Shopify sets up e-commerce sites for businesses and partners with others to handle digital payments and shipping.
Most of Shopify’s merchant customers target the consumer market. However, Shopify is planning to move to B2B commerce.
Google A Shopify Partner
Shopify is building a US distribution network to stock and ship products to its merchant customers. The company recently closed its $2.1 billion acquisition of fulfillment operator Deliverr.
At Stifel, analyst Scott Devitt said in a report, “Given management’s comment today, we believe the company is likely to reduce the pace of its investments over the remainder of the year as expenses are realigned to better match demand.”
He said the majority of layoffs will occur in the staffing, support and sales units.
A Shopify partner is a parent of Google the alphabet (The Google). Shopify has also teamed up with Google’s TouTube.
June quarter earnings for Shopify are due to be delivered early Wednesday. Analysts expected revenue growth of 19% for SHOP stock, down from 22% in the March quarter.
Is the June quarter a small trough?
Wall Street expects revenue growth of 26% in the September quarter and 28% in the December quarter.
This is a major flaw from the height of the Shopify pandemic. Its revenue is up 86% in 2020 and 57% in 2021. And while growth is expected to slow to 24% this year, consensus estimates are for sales growth of 29% in 2023.
“We believe 2023 will be a pivotal year as it relates to early indicators of gains from strategic growth investments,” Terry Tillman, an analyst at Trust Securities, said in a second-quarter preview. “We expect The Street’s physical growth to accelerate as we head into 2023.”
Analysts expect Shopify to generate earnings of 8 cents per share in 2022 and 21 cents in 2023 versus earnings per share of 64 cents in 2021.
At RBC Capital Markets, analyst Paul Treiber said Shopify’s second-quarter revenue may miss consensus estimates. He said in a report that the company may refer to currency exchange rates as a factor. The US dollar rose.
Mark Mahaney, an analyst at Evercore ISI, is also cautious.
“Based on quarterly data points, we view current revenue estimates for the second quarter and third quarter of Street as reasonable, with slightly more variance on the downside,” Mahaney said.
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