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Shopify optimistic about 'new shape' of business following layoff, AI announcements

Shopify Inc.'s president said a recent move to streamline operations with a significant layoff and bolster merchant offerings with technology like artificial intelligence has left the company well positioned for growth.
Shopify Inc. headquarters signage in Ottawa, Tuesday, May 3, 2022. THE CANADIAN PRESS/Sean Kilpatrick

Shopify Inc.'s president said a recent move to streamline operations with a significant layoff and bolster merchant offerings with technology like artificial intelligence has left the company well positioned for growth.

"The new shape of Shopify is enabling us to make faster decisions, flex with the rapid pace of technology and deliver innovative solutions that increase our merchants' odds of success," Harley Finkelstein said on a Wednesday call with analysts.

"Even after 17 years and all the changes we have made recently, we know the opportunities for Shopify are only growing."

He said he feels those opportunities lie across several domains: online and in-person commerce, small and medium businesses, direct-to-consumer models, and domestic and global markets.

Finkelstein's optimism comes amid a period of immense change at Shopify, a Canadian tech darling turned e-commerce stalwart that counts Unilever, Nestle and even pop star Taylor Swift among its customers.

The business announced plans to reduce its head count by about 20 per cent in May, roughly a year after it made a 10 per cent cut. 

In its latest quarter alone, the cuts have resulted in US$148 million in severance expenses, but could grow because former workers are pursuing at least one class action lawsuit that may see some receive higher payouts. 

When Shopify executives announced the layoff, they positioned the reduction as a way of helping the company refocus on its main e-commerce business and said the reprioritization would be coupled with the company selling its logistics business to Flexport, a supply chain management firm.

The transaction closed about two months ago, but Shopify is still working through the terms of its agreement with Flexport, said Jeff Hoffmeister, Shopify's chief financial officer.

"We are pleased with how the transition has gone so far," he said.

As the company off-loads the fulfilment business and said goodbye to workers, it has doubled down on product offerings, announcing 100 new features for merchants at its semi-annual product showcase, Shopify Editions, last week. 

The highest profile was a suite of AI tools that can write product descriptions, email subject lines and headings for online stores. It also includes Sidekick, a chatbot the company's merchant customers can use to ask questions about business operations.

Finkelstein and Hoffmeister promoted AI on the analyst call meant to discuss Shopify's latest quarter, where it recorded a US$1.3 billion loss in its second quarter compared with a net loss of US$1.2 billion a year earlier.

The results for the company, which reports in U.S. dollars, worked out to a net loss of $1.02 per share compared with a loss of 95 cents per share a year ago.

Analysts on average had expected a loss of 46 cents per share, according to estimates compiled by financial markets data firm Refinitiv.

The company's revenue hit almost US$1.7 billion in the quarter compared with roughly US$1.3 million in the same quarter a year ago.

Looking ahead to the third quarter, the company said it expected revenue to grow at "a low-twenties percentage rate" on a year-over-year basis and free cash flow to be higher than the first half of the year.

Factoring into future financial results will be a recent compensation review process — Shopify's first since it made a succession of changes to earnings and staffing.

Over the last year, Shopify split workers into two career tracks — managers and "crafters" — with equivalent compensation levels and gave employees a "total rewards wallet" that allows them to choose between cash and stock options for their compensation.

As a result of these changes, some existing staff will see their earnings grow next quarter, Hoffmeister said. He expects the company to spend US$110 million on stock-based compensation next quarter.

"That said, we will continue to be extremely disciplined regarding our approach to talent and compensation," Hoffmeister pledged.

This report by The Canadian Press was first published Aug. 2, 2023.

Companies in this story: (TSX:SHOP)

Tara Deschamps, The Canadian Press