Shopify’s stock soars after posting surprise profit, announcing steep job cuts | Canada News Media
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Shopify’s stock soars after posting surprise profit, announcing steep job cuts

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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 

 

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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside

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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.

The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.

The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.

Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.

The Canadian Press. All rights reserved.

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