Dive Brief:

• E-commerce platform Shopify on Thursday reported $1.5 billion in revenue for the first quarter ending March 31. That’s up 25% from a year ago. The company also reported $717 million in gross profit and an operating loss of $193 million. The operating loss represents 13% of revenue, up from $98 million or 8% of revenue a year ago.
• Also Thursday, the company announced it’s selling the majority of its logistics business to Flexport. As a result of that change, 20% of Shopify’s staff are being laid off, effective immediately.
• Harish Abbott, co-founder and CEO of Deliverr, will lead the transition of Shopify’s logistics business to Flexport under the guidance of Dave Clark, Flexport’s CEO. The deal is expected to close in the second quarter, subject to certain conditions and regulatory approval. 

Dive Insight:

In a public memo addressing the headcount and business changes in more detail, Shopify founder and CEO Tobias Lütke said the company has spent the past year refocusing on its primary mission of making the best possible e-commerce product easier to use, more participatory and more common.

“Logistics was clearly a worthwhile side quest for us, and started to create the conditions for our main quest to succeed. From the beginning, we worked with lots of partners on all aspects of this same problem: warehouses, robotics, transportation, cross-dock, freight,” Lütke said.

Under the terms of the deal, Flexport will become Shopify’s logistics partner and preferred provider. Shopify will receive stock representing a 13% equity interest in Flexport, in addition to its existing equity interest, the company said in its earnings announcement. The deal also entitles Shopify to name a director to Flexport’s board. 

And the company’s future and the future of retail and e-commerce, Lutke said, will involve AI.

“But now we are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented. Shopify has the privilege of being amongst the companies with the best chances of using AI to help our customers,” Lütke said.

Shopify says it welcomed more brands to the platform in Q1 including Keen, 7 for All Mankind, Seiko, and Herschel Supply. Also last quarter, the company launched a new AI assistant on its shopping app and launched Pinterest as an advertising channel for Shopify Audiences.

In its second-quarter guidance, Shopify said it expects revenue to grow at a similar rate to Q1 on a year-over-year basis. “We also estimate that we will incur a severance charge in the range of $140 to $150 million in the second quarter of 2023 related to the workforce reduction,” the company said.

Last summer, as Shopify reported a second-quarter loss of $1.2 billion, the company laid off 10% of its workforce. A week later, the company invested $100 million in Klaviyo, an e-commerce automation company.

Shopify employed about 11,600 people as of Dec. 31, 2022, so a 20% reduction to that number would represent about 2,300 potential job cuts. Everyone who is being laid off will receive a minimum of 16 weeks severance, plus one week for every year of tenure.

Those affected by the current round of layoffs will retain their medical and employee assistance benefits during the severance period. Shopify is also offering outplacement services and said that while employees must return their work laptops, the company will help pay for a new replacement device. And those being let go will also retain free access to Shopify’s advanced plan “should you opt to take an entrepreneurial path in the future,” Lütke said in his memo.

“This is a consequential and hard week. It’s the right thing for Shopify but it negatively affects many team members who we admire and love working with. This is one of those times where both right and hard are true at the same time,” he said.