The Shopify app for download from the Apple App Store on a smartphone is hosted in Brooklyn, New York on Wednesday, February. 16, 2022.
Gabby Jones | Bloomberg | Getty Images
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ShopifyThe pandemic boom is finally over.
After more than two years of Covid and a pandemic-driven stock surge of more than 347%, the e-commerce giant is finally tightening its belt. On Tuesday, Shopify announces layoffs by 10% of its workforce, and less than a day later, the company lowered its financial outlook for the rest of the year. As a result of the drop in Shopify’s stock, shares are down 79% from their pandemic highs.
With 1,000 fewer employees, Shopify CEO Tobias Lütke hopes to navigate today’s market environment with minimal disruption. It’s the biggest workforce cut in the company’s history, but it’s not the first time Lutke has gone into survival mode. During the 2008 financial crisis, with just nine employees and two years behind him, Lutke experienced his first downturn.
At that time, Shopify refocused on its core mission: helping aspiring entrepreneurs realize their vision. CFO Amy Shapero hinted at a similar strategy this Wednesday. She told analysts and shareholders about the earnings report: “For the rest of 2022, we expect spending cuts in lower priority areas and non-core activities.”
Shopify’s definition of “non-core activity” may have changed since its inception in 2006. The company has since launched B2B services for wholesale merchants, partnerships with YouTube influencers and celebrities, and even an NFT strategy called “tokenized commerce.” ‘.’
Other ecommerce players have changed their missions and revenue streams over the years: in the 16 years since Shopify launched, Amazon has become a major player in streaming and media, and now relies on its cloud business for a significant portion of its income. Fanatics, other CNBC 50 Destroyer the company stayed closer to its original mission by relying on an aggressive M&A strategy to achieve dominance in the sporting goods market. For Fanatics, merchandise in 2022 includes digital merchandise and NFTs, keeping the Candy Digital vertical true to its original mission.
While Shopify also draws on the metaverse marketplace, at its core, it’s still a business for business owners, just like it was in 2006 when it started, and just like it was in 2013 when it was named the very first CNBC Disruptor 50 list.
In the decade since being listed on this Disruptor 50 list, Shopify has explored international markets as well as digital payments by investing in companies that buy now and pay later. Confirm, which made the annual Disruptor 50 list twice before going public in 2021. Shopify also acquired Deliverr to narrow its competition with Amazon, and as of 2021, the company has celebrated five years of profitability. 16 years later and with a market cap of $42 billion since launch, Shopify merchants make up 10% of all ecommerce sales in the US.
Shopify’s growth has consistently served this original entrepreneur-first mission, and the strategy has paid off: in 2008, that mission kept the company afloat, and in 2020, Shopify’s stock is up almost 350%. For traditional in-person retailers, Shopify software has become a lifeline in the midst of a pandemic. For companies already using Shopify, doubling their online presence with more Shopify tools was a no-brainer.
Shopify has been one of Wall Street’s biggest pandemic winners, but when the company warned in February 2022 that growth faded, stocks began to fall. This week’s lack of earnings and the layoff announcement pushed stocks further off their highs as Shapero blamed inflationary pressures for the lean times ahead.
The vertical most likely to feel the pressure of these leaner times will be the one that at least serves the original mission.
Shopify’s efforts in the metaverse have mostly focused on “tokenized commerce” or the use of NFTs for a specific purpose rather than collection. NFT serves as a ticket to an event, sale, or brand experience, deepening merchants’ digital presence and, in line with most brand strategies when it comes to the metaverse, keeping them relevant in online discourse.
But if the company is worried about inflationary pressures on American wallets, executives are likely to consider whether consumers paying record prices for groceries and gasoline will spend enough on digital services to merit continued spending in this area. Most likely, the enterprise has a longer payback period, which puts it at risk. On Shopify’s earnings, Shapero warned that in a softer consumer environment, the company will focus on “activities with shorter payback periods.”
In a conversation with Bessemer, one of Shopify’s venture backers, Lütke compared market disruptions like the 2008 recession and the current pandemic to “shaking the tree and watching what falls.”
With a market capitalization of $42 billion and thousands of sellers in 175 countries, the Ottawa company may have to shake things up a lot more than it did during its first market downturn.
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