Shopify has posted its financial results for the second quarter of 2022, pulling in $1.3 billion (all numbers USD) as the company’s growth continued to slow amid changing e-commerce conditions.
The revenue number represents just a 16 percent year-over-year increase. Shopify stated that its total reported revenue growth year-over-year was negatively impacted by approximately 1.5 percentage points “given the significant strengthening of the U.S. dollar relative to foreign currencies in the second quarter.”
Shopify reported a net loss for the second quarter of $1.2 billion compared with a net income of around $900,000 million during the same period last year. The adjusted net loss was $38.5 million compared with an adjusted net income of $284.6 million last year.
Shopify claimed that merchant GMV “continued to outpace the growth of the broader U.S. online and offline retail markets as consumers shopped across more surfaces.”
The results come just one day after the company made a 10 percent staff reduction across its global workforce. The layoff amounts to approximately 1,000 employees.
CEO Tobi Lütke said the move was related to Shopify making a wrong bet on where the future of e-commerce spending was going amid COVID-19.
“Ultimately, placing this bet was my call to make and I got this wrong,” he wrote in a company-wide memo.
Lütke spoke to the layoffs on Shopify’s conference call following the release of Q2 financials. He explained that Shopify over-staffed in anticipation of e-commerce’s retail market share growing faster than has now panned out as re-openings from COVID-19 have led to a return in physical retail.
“We got the exact number of people we need for the current situation wrong,” he said.
“With the e-commerce penetration rate having normalized back to the trendline, we are going to a staffing level where we would be if COVID hadn’t happened,” Lütke added.
Lütke also worked to justify the bet on the call, noting that it is a characteristic of innovative companies and ones that are founder-run to make bets.
“This week, I feel it why more managerial-run companies tend to not engage in bets,” the CEO said. “I know there is generally not a lot of appetite for risk-taking, but I think our company especially is defined by us not following some kind of orthodox playbook. There’s no ‘this is pre-baked Shopify’ on the shelves of Barnes and Noble, and we have to make it up on the fly.”
Lütke emphasized that what is an easy bet is to think commerce will continue to grow – and Shopify wants to tackle all parts of that, both online and aspects of brick-and-mortar.
Following reports of the layoff, Shopify’s stock price on the Nasdaq dropped from $36.71 as of Monday closing at $31.55 by end of the day Tuesday. The company’s share price is down approximately 80 percent over the last 12 months.
The cuts come just more than a month after BetaKit reported that Shopify was undergoing a hiring slow down and had lowered its expectations regarding company growth.
The second quarter results mirror those from the first quarter of this year, continuing a pattern of slower revenue growth. While the company still saw a 21 percent year-over-year (YoY) increase in revenue last quarter, pulling in $1.2 billion, that number was much smaller than previous YoY growth. The first quarter of 2021 saw a 110 percent YoY and marked the highest revenue growth in the company’s history – fuelled by COVID-19 lockdown and stimulus tailwinds.
This quarter’s numbers, while similar in dollar amount to Q2 2021 (which saw Shopify record its first-ever $1 billion revenue quarter), pale in comparison to the growth Shopify had been seeing in recent years.
The slowing of growth began in the third quarter of last year as Shopify started to see less bloated YoY growth numbers. Then, in the fourth quarter and year-end results, Shopify continued to see more limited revenue growth and lowered its 2022 forecast.
Ahead of today’s earnings report, analysts cut their average consensus estimates for Shopify’s earnings.
Shopify CFO Amy Shapero acknowledged in the report that the company has seen more limited growth of late, citing market conditions where the physical commerce market grew faster this quarter than e-commerce.
She highlighted, however, that Shopify has been working to increase its “offline channels.”
The company also highlighted its gross merchandise volume (GMV) claiming that merchant GMV “continued to outpace the growth of the broader U.S. online and offline retail markets as consumers shopped across more surfaces.”
GMV for this quarter reached $46.9 billion, representing an 11 percent YoY increase. Shopify reported that 53 percent of that GMV was bolstered by gross payments volume, which was $24.9 billion in the quarter compared to $20.3 billion in the same quarter last year when it accounted for 48 percent of GMV.
The company noted that Shopify Payments saw continued adoption by new merchants in the quarter with Shopify Plus, Shop Pay, Shopify Markets, as well as its POS Pro hardware with integrated payments.
Shopify’s adjusted gross profit for this quarter grew six percent to $665 million, compared with $627 million for the second quarter of 2021.
During the conference call, Shopify’s management team also highlighted its fulfillment efforts, with Lütke going as far as to say Shopify’s “vertical integration of logistics” is the big bet the comapny is making now.
Shopify closed its acquisition of Deliverr on July 8 (after the end of Q2). The acquisition brings hundreds of employees to Shopify, as well as significantly expands its fulfillment hub and delivery network.
On the conference call, the company highlighted investments its making across the fullfilent journey, from freight to distribution to two-day fulfillment and delivery, the latter of which President Harley Finkelstein call “the most critical.”
With the changing market conditions, Shopify adjusted its 2022 outlook.
“We have grown our adjusted operating income over the past five years through 2021,” the company wrote. “We now expect 2022 will end up being different, more of a transition year, in which ecommerce has largely reset to the pre-COVID trend line and is now pressured by persistent high inflation.”
Shopify said it expects to generate an adjusted operating loss for the second half of 2022, with its third-quarter adjusted operating loss expected to “materially increase over the second quarter, reflecting time needed for the streamlining of our operations to take effect.”
The company cited the impact of its Deliverr acquisition, its new compensation system (that it expects to implement in the third quarter), and higher inflation combined with rising interest rates.
During this quarter, Lütke also solidified his control of Shopify after shareholders voted in favour of giving the CEO a 40 percent voting stake after the changes to the governance structure were proposed in April.
Feature image source Shopify’s Glassdoor account.