Shopify’s Mass Firing a Result of Q2 2022 Operating Losses

Shopify has today announced its Q2 financial results for 2022 and in doing so has revealed the reason behind its decision to reduce its entire workforce by around 10% just a day earlier.

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In what was otherwise a reasonably well-received report for Q2 (at the time of writing the Shopify share price has recovered over 6% after their 15% the day earlier) the only dark spot on the results relates to the operating expenses and ultimately losses reported for 2022.

The specific wording regarding the operating losses can be seen below:

• Operating loss for the second quarter of 2022 was $190.2 million, or 15% of revenue, versus income of $139.4 million, or 12% of revenue, for the comparable period a year ago.
  
• Adjusted operating loss⁴ for the second quarter of 2022 was $41.8 million, or 3% of revenue, compared with adjusted operating income of $236.8 million or 21% of revenue in the second quarter of 2021. The difference primarily reflects the expansion of our R&D and sales and marketing teams, and the step up in our international marketing efforts and offline performance marketing initiatives.
  
• Net loss for the second quarter of 2022 was $1.2 billion, or $0.95 per basic and diluted share, compared with net income of $0.9 billion, or $0.69⁵ per diluted share, for the second quarter of 2021. Second-quarter 2022 net loss includes a $1.0 billion net unrealized loss on our equity and other investments, while our net income in the second quarter of 2021 included a $0.8 billion net unrealized gain from equity and other investments.

This brings to light just how aggressive Shopify was in their Covid hiring spree when they gambled that the pandemic would jump eCommerce adoption ahead by 5-10 years when in reality levels have returned back to the pre-covid growth rate leaving Shopify massively overstaffed and over-invested in the growth area.

Shopify Revenue Still Growing

Despite the awful situation regarding its overhiring and resulting operating loss, Shopify still has an awful lot of positives going for it. They are continuing to grow across the board and with their recently announced Shopify Editions, they are showing no signs of slowing down the development of what is already a world-class product for eCommerce.

Shopify President Harvey Finkelstein had the following statement on the release of their Q2 figures.

“The superpowers Shopify continued to build for our merchants in Q2 serve them well across virtually any channel and in any environment,”

“Our incredible pace of innovation was highlighted this past quarter with Shopify Editions, a summary of 100+ new capabilities spanning B2B, POS Pro, Shopify Audiences, and Shopify Markets, all designed to unlock even greater value across our entire platform and strengthen Shopify’s commerce operating system.”

Harley Finkelstein, President, Shopify

Meanwhile, their CFO only made a very slight reference to the “recalibrated team” that they are now looking towards for long-term success.

“While commerce through offline channels grew faster in Q2, where our exposure is lower but growing, we continued to see increased adoption of our solutions, enabling our merchants to remain agile against a challenging macro environment and highlighting the breadth and resilience of our business model,”

“Our merchants’ GMV growth continued to outpace the growth of the broader U.S. online and offline retail markets as consumers shopped across more surfaces. Our track record of prudent capital allocation toward opportunities that significantly expand the opportunity set for merchants, accelerate our product roadmap, or have strong paybacks from improved operating efficiency has served Shopify and our merchants well. We have recalibrated our team to build for long-term success, and will continue to operate with rigorous discipline, investing thoughtfully into the enormous opportunity ahead of us.”

Amy Shapero, CFO, Shopify.

These results go to show that even the largest eCommerce businesses are not immune from changes in the market and if they make the wrong call will have to take some unpopular decisions in order to get back on course.

Fortunately, Shopify is of a big enough size that they can withstand this misplaced gamble and have acted quickly to recalibrate. The Q3 results will be an interesting read to see if they have their operating expenses under control.

If you are interested in seeing the full financial results for Q2 2022 you can check them out here.