Once the 'Amazon of the North'
Is Shopify in Trouble? Coming off a net loss of US$1.2-billion in the second quarter
Hey Guys,
I’m Canadian, I literally want SHOP 0.00%↑ to win, but recent stock plunges point to an existential crisis at the company.
But I worry about companies that over-expand and aren’t always cost effective vs. increasing competition.
Recenlty according to LinkedIn News, Shopify has announced a shakeup to its leadership.
Current CFO Amy Shapero will step down at the end of the third quarter, to be replaced by former Morgan Stanley investment banker Jeff Hoffmeister. Meanwhile, Kaz Nejatian has been promoted to COO after serving as the company’s vice-president of product.
They report that the “shakeup” comes as Shopify looks to get back on track following a net loss of US$1.2-billion in the second quarter, though the company has warned that further losses are on the horizon.
Index funds and passive investing really drive up stocks of companies widely considered winners in a bull market, but what happens to them when they face less than stellar conditions?
Shopify’s stock is down 71% YTD. It’s hard to emphasize how big of a deal that is. Their market cap is now down to less than $44 Billion.
After a tremendous run in 2020, COVID-19 stocks, including Shopify, experienced a deceleration in top-line growth in recent quarters. The ongoing pandemic forced retailers to set up an online presence increasing the need for Shopify’s suite of products and services.
Amazon in April launched “Buy With Prime,” allowing merchants to tap into its speedy delivery offerings on their own websites. Shopify warns merchants against using Amazon’s ‘Buy With Prime’ service, this is a major red flag. It suggests that Amazon is eating away at Shopify’s core business model.
It’s a very uncomfortable time for Shopify - with even bizarre warnings. The e-commerce platform is warning merchants who try to install Amazon’s “Buy With Prime” button on their storefront that it violates Shopify’s terms of service, and is also raising the specter of security risks, according to research firm Marketplace Pulse.
Companies who experienced a Pandemic boost nearly always get their projections wrong. The pandemic boom allowed Shopify to increase sales by 86% year over year to US$2.92 billion in 2020 compared to a 48% increase in revenue in 2019. But as economies all over the world relaxed restrictions, Shopify’s top-line growth was bound to slow down in 2021. Shopify’s remote work policy also perhaps has diminished its cultural cohesion and trust in its own leadership.
The problem is not by the way who is CFO or COO, it’s the erratic and somewhat Zuck-like behavior of Toby. Shopify attracts a lot of top tier Canadian talent, but Shopify may be a more toxic place to work at recently. Who do leaders perform when their core business is under stress?
Shopify stock is forecast to report sales of US$7.71 billion in 2022 and US$10.29 billion in 2023. Amazon introduced Buy With Prime in April (CNBC), pitching it as a way for merchants to grow traffic on their own websites. The service lets merchants add the Prime logo and offer Amazon’s speedy delivery options on their sites. Members of the retail giant’s Prime loyalty club can check out using their Amazon account.
Shopify provides the technology to get online storefronts up and running. But inflation and less consumer spending is a terrible macro environment for SMBs and E-commerce stores. The headwinds for E-commerce sales are not good for 2023 at a time when logistics and delivery fees go up so much with an EU energy crisis and volatile costs of gas and oil.
It wasn’t so long ago that Tobias Lütke had transformed Shopify into an e-commerce giant with a $145 billion market value. But now it’s less, it’s gone down to nearly a quarter of that. With rising interest rates and a strengthening U.S. dollar to CDN, more pain is likely to come for Shopify.
Keep reading with a 7-day free trial
Subscribe to OK, Robot to keep reading this post and get 7 days of free access to the full post archives.