Management announced huge layoffs, confirming investor's worst concerns

Shares of Shopify Inc. (SHOP) fell as low as 17.2% on Tuesday. The stock was still down 16.2% as of 10:24 a.m.
 
WAN CHAI, Hong Kong - Nov. 18, 2022 - PRLog -- The decision to dramatically downsize its employees despite declining online sales growth was the impetus that drove the e-commerce tools supplier tumbling.

In an email to employees on Tuesday, CEO Tobi Lütke stated that SHOP intends to lay off 10% of its workforce or around 1,000 individuals by the end of the day. The majority of the layoffs are in the sales, support and recruitment departments.

Investors were more interested in Lütke's explanation for the reduction. At the peak of the pandemic, Shopify "bet that the channel mix — the percentage of revenues that move through e-commerce rather than physical retail — will forever surge ahead by five or even ten years... It's now evident that the gamble didn't pay off... I got this wrong."

Lütke went on to explain that while many of the company's past inventions aided in its growth into "something greater," Shopify will now focus on being "more focused, more determined and more distinct in aim."

Perhaps most striking was a figure given by Lütke that depicted the general adoption of e-commerce. It seems that the early rise in internet sales caused by the pandemic had slowed, returning to its usual growth pace. This appears to confirm investor's greatest worries that the rate of internet sales growth has permanently slowed.

SHOP's employment has risen significantly in recent years, more than doubling from 1,900 in 2016 to almost 10,000 in 2021. Investors are concerned about the future after confirmation that e-commerce growth has slowed, resulting in layoffs.

Despite this, internet sales in the United States totalled just 14.3% of total retail in the first quarter, up from around 5.5% a decade ago. This shows that, while the way forward for digital retail may be slower than originally anticipated, e-commerce adoption is far from done, taking decades rather than years.

Patient investors should keep in mind that time is on their side. SHOP's expansion will continue, although at a slower pace, and today's share price decrease will most likely represent a long-term purchasing opportunity.

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