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Noah Zivitz

Managing Editor, BNN Bloomberg

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Shopify Inc. shares tumbled Tuesday as the Canadian tech giant revealed a significant round of layoffs as the pandemic e-commerce boom fades.

Founder and Chief Executive Officer Tobi Lütke announced in a staff memo that around 10 per cent of the company’s workforce, or approximately 1,000 employees, would be let go by the end of the day.  

“When the COVID pandemic set in, almost all retail shifted online because of shelter-in-place orders. Demand for Shopify skyrocketed. To help merchants, we threw away our roadmaps and shipped everything that could possibly be helpful,” Lütke wrote in the memo, adding that his company also made a bet that the pivot to e-commerce would “permanently leap ahead by five or even 10 years.”

“It’s now clear that bet didn’t pay off. What we see now is the mix reverting to roughly where pre-COVID data would have suggested it should be at this point.”

He said most of the roles being cut are in recruiting, support, and sales. Other cuts would target duplicate roles and what Lütke described as “over-specialized” functions.

Shopify shares closed almost 14 per cent lower at $40.69 on the Toronto Stock Exchange Tuesday after falling as much as 16.6 per cent earlier in the session.

“I think this is a sign of the company observing some headwinds in their business and choosing to go on a more disciplined growth and profitability path,” said Tyler Radke, a director at Citi Research, in an interview.

Just prior to the layoff announcement, Radke trimmed his price target on Shopify’s New York-listed shares to US$37.00 apiece from US$43.20 amid concerns about what he called “a challenging demand backdrop.”

“This company was growing close to triple digits in some quarters. And, you know, I think as investors we’re oftentimes guilty of extrapolating past trends into the future,” he said in the interview.  

It's been a steep fall from grace for the company’s stock after its growth was turbocharged in the early days of the pandemic. Shopify emerged as one of the TSX’s star performers in 2020 as its share price surged 178 per cent over the course of the year. However, as COVID-19 restrictions loosened and consumers resumed in-store shopping, the euphoria surrounding Shopify evaporated in a trend exacerbated by investors’ rapid pivot away from growth stocks and as central banks started hiking interest rates. Through the close of trading Monday, Shopify’s TSX-listed shares had lost 73 per cent of their value this year.

“The economy can only grow at a certain rate for a long period of time; for short periods of times when there's tremendous stimulus in the system, you can get these hockey sticks of growth that occur as a result of tremendous stimulus from the government. That stimulus now has been pulled, the valuations have corrected dramatically,” said Tom Marsico, chief executive and chief investment officer of Marsico Capital Management, in an interview.

He added that Marsico Capital Management, which had US$2.54 billion in assets under management as of June 30, bought Shopify shares early in the pandemic — and he’d give it another look now since the stock has pulled back so sharply.

“I believe Shopify is a very well run company. The valuation is compelling at this level for more speculative accounts that are looking for long-term growth. So, would I be interested in establishing a position in Shopify at these levels? Absolutely.” 

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