Shopify Warns of Losses for the Full Year, After Job Cuts

Shopify Inc.

SHOP 5.23%

posted a quarterly loss and warned it would post losses in the rest of the year as e-commerce growth slows, a day after the company said it would cut 10% of its employees.

The outlook sent the Canadian company’s shares—which have dropped more than 80% from their November peak—slightly lower in pre-market trading. The stock dropped 14% on Tuesday after The Wall Street Journal reported the layoffs.

Shopify posted a second-quarter net loss of $1.21 billion, compared with net income of $876 million in the year-earlier quarter. On an adjusted basis, the company said it had an operating loss of about $42 million and that it expected losses on that basis to “materially increase” in the third quarter.

Both the second-quarter adjusted operating loss and total revenue of $1.30 billion, up 16% from a year ago, came in below the FactSet consensus estimates for the company. Operating expenses jumped 75% from a year ago to $845 million, as Shopify ramped up spending on marketing and product development.

Tobi Lütke, the company’s founder and chief executive, told staff in a memo sent Tuesday that the layoffs were necessary as consumers resume old shopping habits. Shopify, which helps businesses set up e-commerce websites, had warned that it expected revenue growth to slow this year after jumping 86% in 2020 and 57% in 2021.

mr. Lütke said he had expected that surging e-commerce sales growth would last beyond the Covid-19 pandemic’s ebb. “It’s now clear that bet didn’t pay off,” said Mr. Lütke in the letter, which was reviewed by the Journal. “Ultimately, placing this bet was my call to make and I got this wrong.”

Inflation also hurts the company’s business, said Amy Shapero, Shopify’s finance chief. Shoppers turned to discount retailers as prices rose, she said. Inflation pressures will “persist through the end of the year,” Ms. Shapero said Wednesday.

The company said it expects an adjusted operating loss for the second half of the year, with a peak in the third quarter as its restructuring efforts take hold.

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