Shopify job cuts, surprise profit send shares up about 19% By Reuters

© Reuters. FILE PHOTO: An employee works at Shopify’s headquarters in Ottawa, Ontario, Canada, October 22, 2018. REUTERS/Chris Wattie/File Photo

By Chavi Mehta

(Reuters) -Shopify Inc posted a surprise first-quarter profit on Thursday and said it would lay off 20% of its workforce in a second round of mass job cuts, sending its U.S.-listed shares more than 18.7% higher in early trade.

The Canadian e-commerce company also agreed to sell the logistics arm it built over the past few years to freight forwarder Flexport in an all-stock deal, marking a reversal of its strategy of aggressively investing in fulfillment networks.

“They can have the best of both worlds – a logistics business that makes them competitive with Amazon (NASDAQ:) without having to manage a business that is not core to Shopify (NYSE:) and had been losing money,” said Gil Luria, analyst at D.A. Davidson & Co.

Shopify had built out its order fulfillment network in recent years on expectations a pandemic-fueled demand boom would last, mirroring similar moves by rivals.

But that bet unraveled last year, sharpening investor scrutiny of the capital-intensive project that could weigh on Shopify’s earnings and forcing it to cut 10% of jobs in July.

The layoffs announced on Thursday are expected to result in a severance charge of between $140 million and $150 million in the second quarter. Shopify had 11,600 employees and contractors, as of Dec. 31.

“Combined with the reduction in force, management is showing its commitment to profitability which investors had been concerned about,” Luria added.

Its earnings for the January-March period, however, showed the benefits from a host of new tools that encouraged businesses from Mattel (NASDAQ:) to Coty (NYSE:) to integrate Shopify into their own sites, allowing the company to hike its subscription fees for merchants.

“We are seeing that consumers are really voting with their wallets to buy from brands they love,” President Harley Finkelstein said in an interview. “There is sort of intentionality around discretionary spending.”

Revenue of $1.51 billion topped analysts’ estimates of $1.43 billion, according to Refinitiv. Adjusted profit was 1 cent per share, compared with expectations for a 4 cent loss.

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