Major shake up at Shopify!

Welcome to the first update of May. This week has seen some significant events at Shopify so let’s dive straight in, including the unfortunate layoff of 20% of their workforce, the sale of their logistics arm Deliverr to Flexport, and an informative earnings call. In this edition, we'll be covering these crucial developments and more, all aimed at helping your online store succeed. Let's take a moment to acknowledge the impact of these changes and then delve into this week's Shopify happenings.

• 😔 Shopify layoffs: a huge cut

• 🎯 Refocusing on core business

• 🖊️ Takeaways from Shopify’s earnings call

Shopify layoffs: a huge cut

Shopify has experienced a challenging week with the announcement of its second round of layoffs, letting go of 20% of its workforce - affecting about 2000 Shopifolk.

In what seems like a twist of the knife to the affected personnel, Shopify’s shares surged 23% after the announcement last Thursday.

This devastating news follows the first round of layoffs in July 2022 which saw a 10% reduction in their headcount.

In the announcement, Tobi Lütke, Shopify's CEO, says that Shopify's "main quest” is to make commerce “simpler, easier, more democratized, more participatory, and more common."

However, the company has been engaged in many "side quests" that have distracted it from its core mission.

It continues to say that Shopify is focusing on subtracting anything that hinders them from providing the best possible product.

This brings us to the second big announcement

Refocusing on core business

Shopify is selling logistics businesses Deliverr to Flexport and 6 River Systems to Ocado Group.

Shopify began its four-year experiment to build their own fulfillment network by acquiring 6 River Systems for $450 million in 2019 and Deliverr for $2.1 billion in 2022.

The decision to sell off its logistics arm marks the end of this “side quest”, that distracted them from their main mission.

As a part of the deal for Deliverr, Flexport will become Shopify's preferred logistics partner. Shopify will also receive a 13% equity interest in Flexport, and the right to name a director to Flexport's board.

The details of the deal for 6 River Systems with Ocado group are not yet known.

Takeaways from Shopify’s earnings call

Shopify's Q1 earnings call which happened after these two bombshell announcements, reveal steady growth but a drop in profitability.

• 15% increase ($49.6 billion) in Gross Merchandise Volume (total dollar value of goods sold).

• 25% increase ($1.5 billion) in total revenue hints towards a healthy revenue growth.

• But a decline in gross margin from 53.0% in Q1 2022 to 47.5% points to reduced profitability. Shopify attributes this to their lower-margin services like Deliverr and Shopify Payments.

• The operating loss has grown to $193 million (13% of revenue) vs $98 million (8% of revenue) in Q1 2022.

For the next quarter, Shopify is expecting to have similar growth in revenue (15%) and similar gross margins (47.5%).

Shopify also expects to achieve free cash flow profitability (cash after covering business expenses) for each quarter of 2023.

Since markets opened on Thursday, Shopify’s stock is up by almost 33%.

Pulse Check ⚡️

1. Shopify merchants will now have to contact app partners directly if they want a refund.

2. TikTok and Meta announce new ad products at Interactive Advertising Bureau’s 2023 NewFronts event.

That's a wrap for this week! Join us over on Twitter to chat about all things e-commerce. It's like attending the coolest virtual shopping party – no long lines, pushy salespeople, or shopping cart collisions in sight (@theshoppulse)