Shopify’s stock soars after posting surprise profit, announcing steep job cuts

Shares of Shopify Inc. surged in early trading Thursday after the company posted a surprise first-quarter profit and said it would reduce its headcount by 23 per cent.

The Ottawa-based e-commerce company’s shares rose roughly 21 per cent as of 10:05 ET on the Toronto Stock Exchange on Thursday, the same day it reported earnings for the first quarter of the year topped analyst expectations.

Separately, Shopify said in corporate filings Thursday that that its workforce would shrink by roughly a quarter through layoffs and the sale of its logistics business.

The company had a headcount of 11,600 at the end of 2022; a 23 per cent reduction would result in a shedding of almost 2,700 jobs.

“All geographies and all levels within the organization” were impacted by the cuts, Shopify’s chief financial officer Jeff Hoffmeister said in a call with analysts Thursday, but he declined to say how any of the affected jobs were part of the logistics business.

Global News asked Shopify how many of the layoffs would affect workers in Canada, but a spokesperson did not provide a figure in their response Thursday.

Shopify laid off about 1,000 staff last summer, saying at that time that the company had misjudged growth in the e-commerce market during the pandemic.

Shopify President Harley Finkelstein told The Canadian Press in February that there were “no job cuts coming” for the company.

“We’re in a really good place,” he said at the time.

In an open letter Thursday, chief executive Tobi Lutke said the company “is changing the shape of Shopify significantly today to pay unshared attention to our mission.”

“I recognize the crushing impact this decision has on some of you, and did not make this decision lightly,” Lutke wrote.

The chief executive said Shopify had a number of “side quests” that had begun to “split focus,” and so the company has been “subtracting everything” over the past year to make sure it was as focused as possible on its primary mission.

In that vein, Lutke said the company has also decided to sell Shopify Logistics to Flexport, a supply chain management company, to help the business become more ambitious and global in nature.

Under the terms of the agreement, Shopify will receive stock representing a 13 per cent stake in Flexport and the ability to name a director to Flexport’s board.

The sale, a reversal of its strategy of aggressively investing in fulfillment networks, was well-received by analysts.

“They can have the best of both worlds – a logistics business that makes them competitive with Amazon without having to manage a business that is not core to Shopify and had been losing money,” said Gil Luria, analyst at D.A. Davidson & Co.

“Combined with the reduction in force, management is showing its commitment to profitability which investors had been concerned about.”

Lutke also hinted that the company will lean further into artificial intelligence in the future, calling AI a possible “copilot for entrepreneurship.”

“We are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented. Shopify has the privilege of being amongst the companies with the best chances of using AI to help our customers,” he wrote.

The company also beat Wall Street estimates for first-quarter revenue, sending its U.S.-listed shares up 16 per cent in trading before the bell.

The company posted revenue of US$1.51 billion in the quarter ended March 31, compared with analysts’ estimate of US$1.43 billion, according to Refinitiv data.

— With files from Canadian Press, Reuters