(OTTAWA) Shopify announced Thursday that it will cut its workforce by about 20% and sell its logistics business to Flexport, a supply chain management company.
The Ottawa-based e-commerce company touted the moves as a way to help it focus on its core quest to facilitate commerce.
But achieving this feat also means cutting back on “side quests” that CEO Tobi Lutke described as “always distracting because the company has to divide its attention.”
“Technological progress is always about simplicity, and entrepreneurs are more successful when they simplify. But we are now at the dawn of the age of artificial intelligence and the new capabilities being unlocked are unprecedented,” he said in an open letter announcing the changes.
“Our main quest asks us to build the best thing that is now possible, and that has just completely changed. »
Shopify’s stock jumped $14.60, or 23%, on Thursday on the Toronto Stock Exchange, where it closed at $77.65.
The company declined to give a specific number of employees affected by the new cuts, but it said in a regulatory document produced in late 2022 that it had 11,600 employees. A proportion of 20% of this workforce would represent approximately 2,300 people.
“I recognize the overwhelming impact this decision has on some of you and I did not take this decision lightly,” Lutke wrote.
In February, Shopify President Harley Finkelstein said there were no more staff cuts on the company’s charts. Shopify had already laid off about 1,000 employees last summer.
Mr. Lutke promised affected employees a severance package of at least 16 weeks, plus one week for every year worked at Shopify. Medical coverage and an employee assistance program will also be offered to departing staff during the same period.
Those leaving will also be able to keep their office furniture, and while they will have to return their company laptops, Lutke said Shopify will help them pay for new ones.
“It’s a tough day,” Mr. Finkelstein said. It’s not something you want to have to do as a chef, or as a company, ever. »
“But sometimes the easiest thing to do and the right thing to do aren’t the same thing, and in this case, the hardest thing to do was the right thing to do.” »
Mr. Lutke also explained that the company decided to sell Shopify Logistics to Flexport to help the company become more ambitious and global.
According to the details of the agreement, Shopify will receive shares equivalent to a 13% stake in Flexport and will obtain the possibility of appointing a director to the board of directors of Flexport.
Flexport will become Shopify’s official logistics partner.
The transaction is expected to close in the second quarter of 2023, but is subject to certain conditions and regulatory approval.
Rick Watson, founder of RMW Commerce Consulting, believes that Shopify entered into this agreement to “correct a huge mistake they made in getting into the fulfillment business to begin with.”
Shopify’s core product—software—generates high margins, while logistics is a low-margin and often volume-driven business, which forced Shopify to buy other companies to stay competitive, Watson explained. .
He thinks the layoffs and the Flexport deal were meant to boost the stock price, because “that’s what Wall Street is rewarding right now” and Shopify had enough money to keep its workforce. “more or less indefinitely”. He said he would be shocked to see further layoffs at Shopify soon.
Shopify’s announcements came on the sidelines of the company’s most recent financial results release. For its fiscal first quarter, Shopify posted a profit of US$68 million, which compared to a net loss of US$1.4 billion for the same period last year.
Earnings per share were 5 cents US, compared to a loss per share of $1.17 a year earlier.
Revenue for the quarter ended March 31 increased 25% year over year to $1.5 billion.
Shopify’s announcements came on the sidelines of the company’s most recent financial results release. For its fiscal first quarter, Shopify posted a profit of US$68 million, which compared to a net loss of US$1.4 billion for the same period last year. Earnings per share were 5 cents US, compared to a loss per share of $1.17 a year earlier. Revenue for the quarter ended March 31 increased 25% year over year to $1.5 billion.