The epidemic bonus is over, where should Shopify go?

Shopify’s epidemic dividend is finally over.

After more than two years of the coronavirus pandemic and the resulting stock surge, the e-commerce giant is finally tightening its belt. On Tuesday, Shopify announced a 10% layoff of its workforce , and within a day, the company cut its revenue forecast for the second half of the year. The ensuing stock plunge has left Shopify's stock price 79% lower than its pandemic high.

Shopify CEO Tobias Lutke wants to reduce the number of employees by 1,000 to minimize costs and get through this difficult period. This is the largest layoff in the company's history, but this is not the first time Lutke has entered "survival mode." During the financial crisis in 2008, Lutke had only 9 employees, and after struggling for two years, he survived the first "downturn" period.

At the time, Shopify refocused on its core business: helping budding entrepreneurs realize their visions. On Wednesday, Chief Financial Officer Amy Shapero hinted at a similar strategy. “Throughout the remainder of 2022, we will reduce spending in lower priority areas and non-core activities,” she told analysts and shareholders on an earnings call.

Shopify’s definition of “non-core activities” may have changed since its founding in 2006. The company has launched B2B services for wholesale merchants, formed partnerships with YouTube influencers and celebrities, and even launched a strategic initiative for NFTs called “tokengated commerce.”

Other e-commerce companies’ missions and revenue streams have evolved over the years: In the 16 years since Shopify was founded, Amazon has become a major player in streaming and media, and now relies on its cloud business for a large portion of its revenue.

In the decade since it was named to the Disruptor 50 list, Shopify has explored not only international markets but also digital payments, investing in buy now, pay later company Absim, which made the annual Disruptor 50 list twice before going public in 2021. Shopify also acquired Deliverr to close the gap with Amazon, and the company has achieved five years of profitability as of 2021. Sixteen years after its founding, Shopify has a market value of $42 billion and accounts for 10% of total U.S. e-commerce sales.

Shopify has consistently served its entrepreneur-first mission, and it has paid off: It kept the company alive in 2008, and it’s this mission that has driven Shopify’s stock price up nearly 350% in 2020. For traditional offline retail, Shopify’s software has become a lifeline during the pandemic.

Shopify was one of Wall Street's biggest winners during the pandemic, but its stock price fell after the company warned in February 2022 that the pandemic dividend would fade. This week's earnings report and layoff announcement pushed the stock price further off its highs.

Withdraw Metaverse business?

Shopify's business in the metaverse is mainly focused on "token trading", that is, using NFT for a purpose rather than simply for collection. NFTs serve as tickets for activities, sales or brand experiences, deepening the digital presence of merchants and are consistent with the strategies of most brands.

But if the company is concerned about inflation weighing on Americans’ wallets, executives may consider whether consumers are willing to continue spending in the digital space after paying high prices for groceries and gasoline. Moreover, the return cycle of this investment is long and there is some risk. During Shopify’s earnings call, Shapero warned that the company would focus on “projects with shorter payback periods” in the weak consumer environment.

In a conversation with Bessemer, one of Shopify’s venture investors, Lutke likened market turmoil like the 2008 recession and the current pandemic to “shaking a tree and seeing what falls.”

The Ottawa-based company, which has a market value of $42 billion and thousands of merchants in 175 countries, could take a much bigger hit than the first market downturn.

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