Shopify reduces staff, sells Deliverr

Shopify despite being viewed as a growing competitor to Amazon, is selling two major parts of its fulfillment network.

Additionally, Shopify reported $1.5 billion in revenue for the first quarter, exceeding Wall Street's expectations. The company reported a profit when analysts expected a loss.

According to a blog post posted Thursday, the company will also lay off about 20% of its workforce, the second mass layoff within the past 12 months. Prior to and after the announcement last year, Shopify reportedly laid off dozens of employees. Those affected will receive 16 weeks of severance pay and medical benefits, the company said.

“There’s no way to make this good news, but we designed a package that will attempt to make it the best possible version of a bad day,” Shopify CEO Tobias Lütke said in the blog post.

A remarkable reversal follows the Canadian company's multiyear effort to build its own warehousing and delivery operations. However, investors welcomed the move to focus on its retail business on Thursday by sending the company's stocks up as much as 17%.

As part of its earnings report, Shopify disclosed that it generated $1.5 billion in revenue for the first quarter, which exceeded Wall Street's expectations. The company reported a profit when analysts expected a loss.

Shopify said Thursday that it would sell most of its fulfillment assets to logistics provider Flexport in an all-stock deal, which would also include Deliverr's sale. Deliverr was just acquired by Shopify for $2.1 billion last year.

The company said Shopify will receive a 13% stake in Flexport, bringing its total ownership up to the high teens. For merchants using Shopify's e-commerce tools, Flexport will be the official logistics partner. Additionally, Shopify's warehouses will be acquired.

Another major part of Shopify's network, the warehouse automation firm 6 River Systems, has been purchased by the British grocery-tech company Ocado Group.

“This is about removing distractions,” said Rick Watson, CEO and Founder of RMW Commerce Consulting. “Long term the right decision, but short-to-medium term it is raises many more questions about Shopify’s management team.”

Deliverr, 6RS, and SFN App are all part of Shopify's logistics network.

As online shopping slows down after the pandemic and inflation rises, the company based in Ottawa, Ontario, is trying to reduce costs. Additionally, the moves will allow it to offload employees acquired through the deals.

Shopify is returning to its roots, President Harley Finkelstein said an interview addressing only the Flexport deal.

“Fundamentally, this lets Shopify get back to what we do better than anyone on the planet, which is the retail side of the business,” Finkelstein said.

Meanwhile, Flexport CEO Dave Clark said he believes Shopify is doing “some of the hardest things the leadership team has to do, which is change direction when you learn new information.”

Flexport, last valued at $8 billion, declined to share more information about its financials. But analysts say its valuation has likely gone down in recent months given the tough investment environment.

Even if the company were still valued at $8 billion, Shopify is selling the assets at a loss, given the $2.1 billion it paid just for Deliverr last year. Under the prior valuation, the e-commerce company would get roughly $1 billion worth of Flexport stock.

It is unclear what the terms of the deal are between Shopify and Ocado Group. According to an Ocado Group spokesperson, the transaction didn't meet the formal disclosure requirements. In 2019, the e-commerce company purchased 6 River Systems for $450 million.