High, higher, highest: There are industries that have done anything but suffer as a result of the Corona pandemic and the lockdowns but have instead enjoyed the business of a lifetime. For example, various online retailers. And software companies whose tools make online commerce possible in the first place. Like Shopify, for instance. Investors were pleased, because the Canadian company’s share price skyrocketed to an all-time high with the pandemic – and has since returned to reality.
154.70 euros: that’s how much the Shopify share was worth on the Frankfurt Stock Exchange in November 2021, an all-time high for the developer. After all, after stores closed almost across the board and over and over again starting in March 2020, many retailers used Shopify store software to move their businesses online and make their products available online. The simple set-up, uncomplicated operation and moderate price model have played out their advantages over the significantly more complex structures of Magento and Co. and turned even “digital non-natives” into e-commerce experts.
So, it’s no wonder that Shopify’s share price also soared. Demand for the software was high – so high that, as Shopify founder Tobias Lütke put it in a letter to the workforce at the end of July, the company’s management threw long-planned roadmaps overboard and “shipped everything that could be helpful to retailers.” The workforce was increased, to a good 10,000 employees worldwide, in order to be able to handle all inquiries and concerns. And sales? That nearly tripled between the pre-Corona year of 2019 and 2021; from just under $1.6 billion to a healthy $4.6 billion.
28.61 euros: This was the value for which Shopify shares were trading on the Frankfurt Stock Exchange less than seven months later. A new 52-week low that represented just under one-fifth of the value from its heyday. But how did the slump come about? Tobias Lütke himself put it this way in his letter to staff a few weeks ago: “Before the pandemic, e-commerce growth was constant and predictable. Should this increase be a temporary effect or a new normal? Given what we were seeing, we made a […] bet: We were betting that the channel mix – that is, the proportion of sales that are handled by e-commerce rather than physical retail – would take a permanent leap forward over the next five or even ten years. […] Today, it is clear that this bet did not pay off. What we’re seeing now is that the mix is returning to about where it should be at this point, according to pre-Covid data.” As a result, he then announced in the same letter that he was laying off one-tenth of his staff; nearly 1,000 employees – primarily in recruiting, customer support and sales – had lost their jobs at that moment.
Shopify is downsizing
That sounds tough – and it is. Especially against the backdrop of the 2020 and 2021 revenue figures. But if you look closely, you can see that the share price has already been falling since the end of 2021 and has now lost a good 80 percent compared to its peak value from November 2021. That’s where every CEO has to act. And Tobias Lütke has done so in a way that is – for us – unusual: He has admitted he was wrong. “Ultimately, it was my decision to make this bet, and I was wrong. Now we have to adjust,” he wrote.
At a time when it’s so much easier to blame the crisis, circumstances, competitors, difficult customers – in short, everyone else – for his predicament, he’s not backing down. Of course, that doesn’t help those who have been laid off. Their job is terminated. And even if Shopify offers help in finding a new job, makes career coaching possible, and wants to provide support with resumes and the like, and in some cases even gives the former employees their home office furniture – their job at Shopify is still terminated. And yet, with statements like these, the company is setting a pleasant tone in a working world dominated by “hire and fire”.
Shopify continues to be one of the big players
But back to the actual topic: The question remains, what does the slump in the share price of the last few months mean? Does it mean that the idea behind Shopify has failed? Or were the last two years simply an exceptional phase?
The fact is: compared to the years before Corona, Shopify is still growing today – just a bit slower again. You could also say that the company has arrived in the new reality. The pandemic has given Shopify an enormous boom. In a mid-August 2022 survey by W3Techs, Shopify has moved up from a split 4th/5th place in 2019 to 2nd place behind all-time leader WordPress in terms of market share among content management systems. And Online Marketing Rockstars, or OMR, ranked Shopify among the top 7 store software vendors as early as 2021.
Even slower growth is growth
So, it’s fair to assume that the boom of the last two years was indeed a special event, and Shopify’s growth has now simply returned to a normal level. 16% year-over-year in Q2 2022, for example. While some pop the champagne corks at growth figures of this magnitude, it is a rather small value for Shopify – and thus a sign that the provider’s growth is slowing down. At least, that’s what various trade portals like www.fool.com and www.it-times.de agree on.
The fact that investors, who have been spoiled by Shopify’s dream growth rates up to now, are now reacting to a slowdown in development in such a way that the share price plummets, puts what Shopify has achieved in recent years in a light that the platform does not really deserve. Because what must not be forgotten despite all the turbulence on the stock market is: even slow growth is still growth.
Has the success gone to Shopify’s head?
Nevertheless, Shopify should be careful, because the success of the last two years has also changed the company. In my conversations, I’ve noticed that the software company has become more and more arrogant, and that’s not good for anyone. And you know, the arrogance and the fall.
It’s true that Tobias Lütke recognized the alarm signals and made adjustments in good time. After all, adaptability – an important factor for corporate success – means not only picking up on promising market trends, but also correcting misjudgments. And yes, that can be painful. But it can also be healing. In any case, its goal should be to create a healthy, sustainable foundation for new growth.