Early Job Cuts at Shopify Could Boost Earnings

Shopify Inc (SHOP) plunged -14% last July when it announced that it would cut 1,000 jobs after CEO Lutke said the company needed to reduce expenses after an aggressive pandemic expansion.

Shopify was among the first technology companies to slash its workforce during last year’s market rout. Shopify’s job cuts preceded waves of layoffs across the technology sector, including at Amazon.com (AMZN), Meta Platforms (META), and Microsoft (MSFT).  However, Shopify may now reap the benefits of those early job cuts this year as those cuts translate into lower costs, narrower losses, and better cash flow.

On Wednesday, Shopify will report Q4 earnings results, and the payoff from last year’s job cuts should begin to be evident.  According to data compiled by Bloomberg, analysts have raised their earnings per share estimates for Shopify by 37% over the past six months.  Also, the company’s Q4 cash flow is expected to be a negative $109.3 million, less than half the drain from Q3.

The bump in earnings that Shopify is likely to receive from last year’s job cuts may be a leading indicator for other technology companies that announced job cuts much later than Shopify.  Since announcing the job cuts back in July, Shopify has also announced new partnerships, several customer upgrades, and a significantly higher pricing plan.  As a result, Spear Invest said, “we think there is going to be a bump in the stock price at the next set of earnings results.”

Optimism in Shopify’s turnaround is reflected in its stock price.  Shares of Shopify are up +38% this year, while Amazon.com is up only +19%.  In addition, Bloomberg Intelligence said Shopify’s profitability plan is “likely to be the main focus area of attention” during its earnings call and that an e-commerce rebound is expected after Amazon’s third-party business unit reported +20% growth compared with consensus expectations of just +7%.

However, many analysts remain unconvinced about Shopify’s turnaround.  The company is projected to lose money every year through 2025, and it only has 20 buy ratings versus 23 holds and five sell ratings.  Nevertheless, Baillie Gifford Investment, which is Shopify’s second-largest shareholder, said, “with a low single-digit percentage of U.S. retail sales currently flowing through its platform, and much less elsewhere, there is abundant scope for continued rapid growth.” 

• Stocks Retreat as Elevated U.S. CPI Keeps Hawkish Fed in Play
• Markets Today: Stocks Slide After Stronger Than Expected CPI Report
• S&P Futures Tick Higher Ahead of Key U.S. Inflation Data
• Stocks Finish Higher on Hopes for Moderating U.S. Consumer Prices