Shopify's stock heads for best day yet as company gets set for 'significant pivot'

By Emily Bary

Company is 'changing the shape of Shopify significantly today' with plans to reduce size of the company by 20%

Shares of Shopify Inc. were rocketing 27% in Thursday trading and on track for their best day on record after the e-commerce company announced the planned sale of its logistics business.

Shopify (SHOP.T)dove deeper into logistics during the pandemic in what Baird analyst Colin Sebastian described as a "contentious endeavor, both internally and as a thorn in the side of investors." Shopify's decision to backtrack on the initiative by selling its this business to Flexport in exchange for a greater equity stake in that company is a signal that Shopify no longer deems it worthwhile to go up against behemoth Amazon.com Inc. (AMZN) in seller logistics.

"We are changing the shape of Shopify significantly today to pay unshared attention to our mission," Chief Executive Tobias Lütke said in a letter to staff that was also shared as a blog post. "There are a number of consequences to this, and I don't want to bury the lede: after today Shopify will be smaller by about 20% and Flexport will buy Shopify Logistics; this means some of you will leave Shopify today."

A spokesperson said that the 20% figure encompasses Shopify Logistics and other parts of the business.

Through the terms of the sale, Shopify will receive stock representing a 13% equity interest in Flexport, on top of its existing equity interest in the company.

"We applaud management for making difficult decisions that set the company up better for long-term success, although this is significant pivot," Baird Sebastian wrote in a note to clients.

Lütke called logistics "clearly a worthwhile side quest for us" though he added that "contributing our work to Flexport, under the leadership of Harish Abbott, allows everything about Shopify Logistics to be more ambitious and global in nature."

The announcement came alongside Shopify's first-quarter report, which saw the company post comprehensive income of $77 million, or 5 cents a share. It posted a comprehensive loss of $15 billion, or $1.17 a share, in the year-earlier quarter.

Shopify logged adjusted earnings per share of 1 cent, down from 2 cents a year before, while analysts tracked by FactSet were modeling a 4-cent loss on the metric.

Revenue rose to $1.51 billion from $1.2 billion, while analysts had been looking for $1.44 billion. Gross merchandise volume increased to $49.6 billion, up 15% from a year before.

Lütke also discussed the company's evolving thinking about managers in his blog post.

"The balance of crafter to manager numbers is a tricky one to strike," he commented. "Too few and you risk misalignment on the most important things, too many and you add heavy layers of process, approvals, meetings and ... side quests. Our numbers were unhealthy, just like it is in much of the tech industry."

He added: "A more fit-for-purpose Shopify centered on its main quest has less scope creep, fewer meetings, and more shipping great features for our merchants."

-Emily Bary

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05-04-23 1205ET

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