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Shopify stock sinks 15% after company says it will lay off 10% of workers

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KEY POINTS
  • Shopify plans to lay off roughly 10% of its global workforce, CEO Tobi Lutke wrote in a memo to staff on Tuesday.
  • Shopify’s shares sunk more than 16%.
  • The Canadian company, which makes tools for companies to sell products online, was one of the biggest beneficiaries of the pandemic-driven e-commerce boom.

Shopify is laying off roughly 1,000 workers, or around 10% of its global workforce, the company announced Tuesday.

Shares of Shopify sank more than 16% following the announcement.

In a memo to staff, CEO Tobi Lutke acknowledged he had misjudged how long the pandemic-driven e-commerce boom would last, and amid a broader pullback in online spending, Shopify would move to cut a number of roles.

Shopify had more than 10,000 employees as Dec. 31, 2021, according to a securities filing.

The cuts will affect all of Shopify’s divisions, though most will occur in recruiting, support and sales, and “across the company” it is eliminating “over-specialized and duplicate roles, as well as some groups that were convenient to have but too far removed from building products,” Lutke said in the memo.

Technology companies have been announcing layoffs, hiring freezes and rescinding job offers in the midst of economic uncertainty and Covid pandemic trends tapering off. Earlier this month, Google parent Alphabet and Facebook owner Meta both said they’d slow the pace of hiring. Companies including Netflix and Coinbase have announced layoffs.

The Canadian company, which makes tools for companies to sell products online, was one of the biggest beneficiaries of the pandemic-driven e-commerce boom. As stores reopened and consumers shifted back to pre-pandemic shopping habits, Shopify and other companies in the e-commerce sector began to contend with concerns that they’d be unable to sustain the high-flying growth they enjoyed.

Shopify bet that the increasing mix of online spending over commerce in stores would “permanently leap ahead by 5 or even 10 years,” Lutke said. It staffed up to meet what it anticipated would be a sustained shift to e-commerce, more than doubling its employee base since the end of 2019, the company said in February.

“It’s now clear that bet didn’t pay off,” Lutke 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.”

In its most recent earnings report, Shopify forecast that revenue growth would be lower in the first half of the year, as it navigates tough pandemic-era comparisons. The company is scheduled to report second-quarter earnings Wednesday.

Shopify said employees who are laid off will receive 16 weeks of severance pay, plus one week for every year of tenure at the company.

This article was originally published on cnbc.com

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