Layoffs and windfall profits have sent Shopify’s share price skyrocketing



Layoffs and windfall profits have sent Shopify's share price skyrocketing

Canadian e-commerce company Shopify Inc unexpectedly posted first-quarter earnings on Thursday and said it would cut 20% of its jobs as part of a second phase of massive layoffs, pushing its U.S. stock price up more than 26% in the first hours. trades.

In addition, the company has agreed to sell the logistics portion of its business built over the past few years to carrier Flexport for share payments, revisiting its strategy to actively invest in its distribution network.

“They can get the best of both worlds – a logistics business that will make them competitive with Amazon without having to run a business that isn’t Shopify’s core and didn’t make a profit,” said Gil Luria (Gil Luria), analyst at DA Davidson & Co.

Shopify, echoing similar moves by competitors, has expanded its fulfillment network in recent years in anticipation that the demand surge fueled by the coronavirus pandemic will continue.

But that prediction fell short last year, heightening investor focus on a capital-intensive project that could hurt Shopify’s bottom line and forcing the company to cut 10% of its jobs last July.

The job cuts announced on Thursday are expected to result in severance pay costs of between $140 million and $150 million in the second quarter. As of December 31, Shopify had 11,600 employees and contractors.

“Combined with downsizing, management is showing the profitability that investors have been worried about,” Luria added.

However, the company’s January-March earnings showed the benefits of a host of new tools that prompted companies from Mattel to Coty to integrate Shopify into their own websites, allowing the company to raise its merchant fees.

“We’re seeing consumers actually vote with their wallets to buy from the brands they love,” the president said. Harley Finkelstein (Harley Finkelstein) in an interview.

Revenue of $1.51 billion beat analysts’ expectations of $1.43 billion, according to Refinitiv. Adjusted earnings were 1 cent per share, while a loss of 4 cents per share was expected.

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