'No cuts coming': Shopify president says company has no plans for another layoff
, The Canadian Press
SHOPIFY INC - CLASS A (SHOP:CT)
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As a growing number of tech companies carry out successive rounds of layoffs, Shopify Inc.'s president says there are no more cuts in the works for the Ottawa-based e-commerce company.
"There's no cuts coming for us," Harley Finkelstein told The Canadian Press.
"We're in a really good place."
His confidence that the company's reductions are done comes months after Shopify was among the first of the world's tech giants to lay off staff in a summer cut that impacted 1,000 workers — roughly 10 per cent of staff. The company attributed the move to it misjudging the growth of the e-commerce sector.
Since then, few major tech companies have been unscathed by the fading investor exuberance, falling valuations and pressure to reach profitability in the event a predicted recession materializes.
Tech giants as big as Amazon, Meta, Microsoft, Intel and Zoom have culled staff from their workforces along with smaller Canadian brands like Wealthsimple, Lightspeed, Clearco and HootSuite.
After Shopify's cuts, Finkelstein feels the company is at the right size.
"I don't think we are going to grow our head count very much," he said.
"I think we can keep it pretty flat other than maybe a couple of key hires."
Asked what areas might garner hires, he said software and product staff are always in demand because there are fewer of them.
But retaining current staff is just as important. To keep workers, Shopify is leaning on Flex Comp, an initiative which gives staff a “total rewards wallet” and allows them to regularly choose between cash and stock options for their compensation.
It was implemented in the wake of Shopify's layoff and as its stock came under pressure, falling from a 52-week high of $113.43 to a low of $33.
In designing the program, Shopify completed an extensive benchmarking exercise to ensure salaries are competitive, but executives warned Flex Comp will likely weigh on its 2023 outlook.
Historically, allocations staff made sat at around 70 per cent cash and 30 per cent equity, Finkelstein said.
"I think Q4 allocations may be skewed slightly more cash than those levels, but it's sort of expected that it will vary each quarter," he said.
"Cash gives certainty, but if you understand the business, obviously, you know, equity is what a lot of people want because they want to be able to participate in the upside there as well."
The company is also hoping to remain attractive to talent with a "digital by default" focus it adopted in 2020 after chief executive Tobi Lütke declared "office centricity is over."
Since then, most staff have worked remotely and Shopify opted not to move into The Well complex at King Street West and Spadina Avenue in downtown Toronto. The company was initially slated to occupy 254,000 square feet at The Well, with the option to add another 433,752 square feet.
"We don't need that much space given the new digital by design," Finkelstein said.
Now, staff feel like they can move wherever and whenever they want (Finkelstein is in the process of shifting his family to Montreal) and travel on a whim.
For those that want to head into an office, Shopify is maintaining some sites, including one at the King Portland Centre, not far from The Well. Many people gathered at the company's properties in recent weeks when it held a series of summits and hack days. Others joined virtually or invited colleagues living nearby over to their homes.
"They hosted like watch parties... so I actually think it is working really well for us," Finkelstein said.
He credits that flexibility with helping the company appeal to new, prized hires like Jeff Hoffmeister, who led Shopify’s initial public offering and worked for Morgan Stanley since 2000. Hoffmeister joined as chief financial officer but is able to work in New York, where Finkelstein frequently travels.
Around the same time as Hoffmeister joined Shopify, chief technology officer Allan Leinwand announced he will be departing the company with chief executive Lütke to take on some of his responsibilities.
Rather than replace Leinwand, Lütke is now overseeing research and development. He previously stepped in to take over chief product officer Craig Miller's responsibilities, when he left in 2020. At the time, Lütke said there were no plans to replace Miller.
The latest move isn't as big as it may seem to outsiders, Finkelstein said.
"He's been doing this for a long time and now we're just sort of documenting it officially."
This report by The Canadian Press was first published Feb. 16, 2024.
Shopify's early job cuts fuel rebound in
earnings, stock price
, Bloomberg News
Shopify Inc. was among the first technology giants to slash its workforce during last year’s market rout. Now, some investors say its stock is poised to outperform peers over the course of 2023 as those job cuts translate into lower costs, narrower losses and better cash flow.
The Canadian e-commerce firm shocked the market when it cut 1,000 jobs in July – a move that sent the stock plummeting 14 per cent in a day as Chief Executive Officer Tobi Lutke said the company need to lower expenses after an aggressive pandemic expansion plan. The move preceded waves of layoffs across the tech sector, including at Amazon.com Inc. and software maker Microsoft Corp.
The payoff should begin to be evident on Wednesday, when Shopify reports fourth-quarter results. Analysts in aggregate have boosted earnings per share estimates by 37 per cent over the past six months, according to data compiled by Bloomberg. While free cash flow is still expected to be a negative US$109.3 million, that’s less than half the amount from the third quarter.
“We are pretty excited about the cost actions’ impact on this year,” said Ivana Delevska, chief investment officer at Spear Invest. Her firm built up a position in Shopify in the fourth quarter, betting on a rebound.
The earnings bump that Shopify is likely to get may be a leading indicator for other tech companies that were relative latecomers to cost cutting, such as Facebook owner Meta Platforms Inc. Shares of Meta surged on Feb. 2 after CEO Mark Zuckerberg pledged to make 2023 the year of efficiency.
Since the job cuts, Shopify has announced new partnerships, a flurry of updates for customers and a significantly higher pricing plan. Delevska said the combination of those efforts should be visible in the earnings. “I think there is going to be a bump at the next set of results,” she said.
Investors appear to have bought into the turnaround story. Shopify’s stock has jumped 40 per cent this year while Amazon shares are up 18 per cent. Indeed, it’s one of the five best-performing stocks in the MSCI World Information Technology Index in 2023 and traders are betting it has room to bounce further, with options pricing in an implied 9.5 per cent move after earnings.
Shopify’s profitability plan is “likely to be the main focus area of attention” during its earnings call, Bloomberg Intelligence analyst Anurag Rana wrote in a report, adding that an e-commerce rebound is expected after Amazon’s third-party business unit posted 20 per cent growth compared with consensus expectations of 7 per cent.
To be fair, Shopify’s bounce comes after an outsized drop – even in the tech sector. The Ottawa-based company started 2022 as the most valuable in Canada, with a market value of C$217.8 billion and a 6 per cent weighting in the S&P/TSX Composite Index, before a near record slide. Its performance last year was so dismal that it almost singlehandedly dragged the country’s main index into the red and affected the value of the pension holdings of every person working in Canada since the Canada Pension Plan Investment Board and the Caisse de Depot et Placement du Quebec are both shareholders.
The company, now valued at C$70 billion, has a long way to climb to regain its former glory. Analysts remain to be convinced, however. They forecast that Shopify will lose money every year through 2025, and their average price target for the stock over the next year is C$61.54, a drop of 5.4 per cent from Monday’s closing level. It has only 20 buy ratings versus 23 holds and five sells.
Still, shareholders continue to expect growth over the longer term.
“With a low single-digit percentage of U.S. retail sales currently flowing through its platform, and much less elsewhere, there is abundant scope for continued rapid growth,” Baillie Gifford investment manager Gary Robinson said in an email. The firm is Shopify’s second-largest shareholder and added to its holdings in 2022 because the shares didn’t reflect the “long-term opportunity.”
This report by The Canadian Press was first published Feb. 14, 2024.
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