Shopify shares plunged 15% in morning trading as Shopify to lay off 10% of workers in broad shake-up.
Tobi Lütke, the company’s founder and chief executive, told staff in a memo sent Tuesday that the layoffs are necessary as consumers resume old shopping habits and pull back on the online orders that fueled the company’s recent growth. Shopify, which helps businesses set up e-commerce websites, has warned that it expects revenue growth to slow this year, and its shares have tumbled nearly 80% since they peaked in November. It reports quarterly results on Wednesday.
Mr. Lütke said he had expected that surging e-commerce sales growth would last past the Covid-19 pandemic’s ebb. “It’s now clear that bet didn’t pay off,” said Mr. Lütke in the letter, which was reviewed by The Wall Street Journal. “Ultimately, placing this bet was my call to make and I got this wrong.”
The Ottawa-based company will cut jobs in all its divisions, though most of the layoffs will occur in recruiting, support and sales units, said Mr. Lütke. “We’re also eliminating over-specialized and duplicate roles, as well as some groups that were convenient to have but too far removed from building products,” he wrote. Staff who are being let go will be notified on Tuesday.
Shopify’s job cuts are among the largest so far in a wave of layoffs and hiring freezes that is washing over technology companies. Rising interest rates, supply-chain shortages and the reversal of pandemic trends, including remote work and e-commerce shopping, have cooled what was once a red-hot tech sector.
Netflix Inc. cut about 300 workers in June as it deals with a loss in subscribers. Twitter Inc., now mired in a legal standoff with Elon Musk, laid off fewer than 100 members of its talent acquisition team. Mr. Musk’s own company, electric-vehicle maker Tesla Inc., late in June laid off roughly 200 people, after announcing it would cut 10% of salaried staff.
Other firms, including Microsoft Corp. and Alphabet Inc.’s Google, said they would slow hiring the rest of the year.
Tuesday’s announcement is Mr. Lütke’s first big move after Shopify’s shareholders approved a board plan to protect his voting power. The job cuts are the first big layoffs the company has announced since Mr. Lütke started the company in 2006.
Shopify’s workforce has increased from 1,900 in 2016 to roughly 10,000 in 2021, according to the company’s filings. The hiring spree was made to help keep up with booming business. E-commerce shopping surged during the pandemic, and many small-business owners created online stores to sell goods and services.
Shopify reported annual revenue growth of 86% in 2020 and 57% in 2021 to about $4.6 billion. However, the company reported a softening this year, and warned that 2022’s numbers wouldn’t benefit from the pandemic trends.
In his memo on Tuesday, Mr. Lütke said, “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.”
Shopify has been expanding its business in recent years to provide more services for merchants. It has developed point-of-sale hardware for retailers, launched a shopping app for its merchants to list products and created a network of fulfillment centers to ship orders for its business partners.
In May, Shopify agreed to buy U.S. fulfillment specialist Deliverr Inc. for $2.1 billion in cash and stock. It announced partnerships with Twitter in June and with YouTube earlier this month, allowing users to buy items that Shopify merchants post on those platforms.
Shopify is offering 16 weeks of severance to the laid-off workers, plus one week for every year of service.