Shopify Shares Sink 16% After Announcing It Will Lay Off 1,000 Employees

Sophie Webster, Tech Times 26 July 2022, 03:07 pm

On Tuesday, July 26, E-commerce company Shopify announced that it would lay off around 1,000 workers, 10% of its global workforce.

Right after the announcement, the company's shares dipped more than 16%.

Shopify Shares Sank After Lay Off Announcement

In a memo to its staff, Shopify CEO Tobi Lutke acknowledged that he had misjudged how long the e-commerce book would last, as the company saw an increase in customers due to the pandemic.

However, there has been a pullback in online spending due to recent inflation, and now the company would have to cut a number of roles.

Shopify had more than 10,000 employees as of 2021, according to the company's securities filing.

The cuts will affect all of the company's divisions, though most will happen in recruiting, support and sales, and across Shopify, according to CNBC.

Also Read: Shopify Black Friday and Cyber Monday Sales Hit a Record $6.3 Billion

The company will eliminate over-specialized and duplicate roles and groups that were "convenient to have but too far removed from building products.

Several tech companies have been announcing layoffs, hiring freezes, and rescinding job offers for months now amid economic uncertainty. It is also a direct result of the COVID-19 pandemic trend tapering off, according to MarketWatch.

In early July, Google parent Alphabet and Facebook owner Meta both stated that they would slow the pace of hiring. Companies such as Coinbase and Netflix announced layoffs in June.

The Canadian company, which makes tools for companies to sell products online, had benefited from the pandemic-drive e-commerce boom.

As physical stores reopened and consumers returned to their old shopping habits, Shopify and other e-commerce companies started to contend with concerns that they would not be able to sustain the high-flying growth they once enjoyed.

Shopify bet that the increasing mix of online spending over commerce in stores would leap ahead by 5 or 10 years, according to Lutke.

The company staffed up to meet what it thought would be a sustained shift to e-commerce, more than doubling its employee base since 2019.

Lutke said that they now see that the "bet did not pay off," and what the company sees now is the mix reverting to roughly where pre-COVD data would have suggested it should be at this point.

The demand is still growing steadily, but it is not at to pace that they anticipated.

In its recent earnings report, Shopify forecast that revenue growth would be much lower in the first half of 2022 as it navigates through pandemic-era comparisons. The e-commerce company is scheduled to report its Q2 earnings on July 27.

Shopify said that all employees laid off would get 16 weeks of severance pay, plus one week for every year of tenure at the company.