Shopify executives warned investors and analysts the company is expecting personnel expenses to weigh on its 2023 outlook as it revealed its most recent quarter delivered a loss of US$623.6 million.
Jeff Hoffmeister, the Ottawa-based e-commerce giant’s new chief financial officer, said the higher personnel expenses are linked to Shopify’s Flex Comp program.
The initiative, in place since last year, gives staff a “total rewards wallet” that allows them to choose between cash and stock options for their compensation and was implemented in the wake of Shopify cutting 1,000 staff and other tech companies following suit.
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Progress can create unlikely allies
There was a time when mining exploration and the environment were like oil and water. Several years ago, I attended social impact investing conferences in America and the U.K. with
“We went through an extensive benchmarking exercise to help us make sure that within Shopify, the right people are getting paid the right amount,” Hoffmeister said on a Wednesday call with analysts.
The exercise, he added, resulted in higher compensation expenses starting in September 2022, primarily in the research and development departments. Thus, he believes the company’s year-over-year comparability will be affected during the first three quarters of 2023.
Shopify’s emphasis on personnel comes as the company has been experiencing turnover among its high-profile staff members.
In January, it announced chief technology officer Allan Leinwand was departing the company, with chief executive Tobi Lütke taking on some of his responsibilities.
Lütke previously stepped in to take over chief product officer Craig Miller’s responsibilities when Miller left in 2020. At the time, Lütke said there were no plans to replace Miller.
The company also parted ways with several key staff, including chief financial officer Amy Shapero, chief operating officer Toby Shannan and chief talent officer Brittany Forsyth, during the pandemic.
As some workers left, Shopify has been grappling with soaring interest rates and stubbornly high inflation and trying to pull itself out of a stock slump triggered by consumers shifting back to pre-pandemic shopping habits.
Shopify executives are confident they can restore the long-term tech darling to its former glory because they say the company has been profitable for five of the seven years since its initial public offering.
They also boast that one of Shopify’s best qualities is its ability to navigate through different macroeconomic environments.
“Pre-COVID, you saw us operating with a particular efficiency, but also a particular eye on growth. During COVID, when things shut down, we went to work to help merchants move online,” Shopify president Harley Finkelstein said on the same call as Hoffmeister.
“We also simultaneously during COVID went to work on building the greatest point-of-sale product because we knew at some point post-COVID stores are going to reopen and once stores did reopen, we went hard in replacing all of those legacy systems with ours, so I think we’ve always operated well in any environment.”
But operating well in this environment will also mean facing off against constant foe Amazon, which dominates the e-commerce sector.
Amazon upped the ante in the battle against Shopify in the spring, launching Buy with Prime, a program allowing third-party merchants to access Amazon’s shipping and logistics network to fulfil orders through their own sites.
“When it comes to Buy with Prime, we think any company that’s going to make their infrastructure available to merchants to sell more is a great thing. We like it,” said Finkelstein.
He added that Shopify is still in discussions with Amazon about the program but added “there’s no update at this time.”
Finkelstein’s remarks come as Shopify recorded a loss of US$623.6 million in its most recent quarter as revenue increased by 26 per cent since last year.
The net loss in what was its fourth quarter compared with a net loss of US$371.3 million during the same period the year before.
The result for the period ended Dec. 31 amounted to a net loss of 49 cents per diluted share compared with 30 cents per diluted share in the same quarter the year before.
Analysts on average had expected the company to lose 16 cents per diluted share, according to estimates compiled by financial markets data firm Refinitiv.
Shopify, which reports its financial figures in U.S. dollars, says its revenue reached US$1.7 billion for the quarter.
Its operating loss was $188.7 million, or 11 per cent of revenue, versus income of $14.4 million, or one per cent of revenue, for the comparable period a year ago.
Seeing the operating loss change, analyst Rick Watson said in an email that “Shopify is firing on all cylinders.”
