Wednesday's Headlines: Shopify to Lay of 10% of Global Workforce
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
Coca-Cola (KO) +1.6%
Brown-Forman (BF.B) +0.8%
Zoetis (ZTS) +0.7%
American Tower (AMT) +0.6%
Otis Worldwide (OTIS) +0.5%
Moving Down ⬇️
Shopify (SHOP) -14.1%
Twilio (TWLO) -8.8%
Cloudflare (NET) -8.3%
The Trade Desk (TTD) -8.2%
Here are the stories that you need to know ahead of market-open today, Wednesday the 27th of July.
Shopify to Lay of 10% of Global Workforce 😰
Shopify (SHOP) is set to become the latest high-growth technology company to announce layoffs following a brutal selloff in the sector. The Canadian e-commerce giant is expected to let 1,000 employees go, according to an internal memo obtained by the Wall Street Journal.
Shopify CEO Tobias Lutke said in the memo that the layoffs were necessary as consumers pull back on online ordering after the COVID-19 pandemic. Like many e-commerce businesses, Shopify invested heavily in staff and infrastructure — anticipating continued growth in the wake of the pandemic.
“It’s now clear that bet didn’t pay off,” Mr Lutke said in the memo. “Ultimately, placing this bet was my call to make and I got this wrong.” In May, Amazon announced that it too had been too optimistic on growth and overinvested, leading to a profit warning for investors. “What we see now is the mix reverting to roughly where pre-COVID data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead,” Lutke said.
Shares of Shopify fell 14% on Tuesday following the news, with the stock now down 80% from its highs in November last year.
High inflation, supply-chain issues, and rising interest rates have all contributed to a tough year for the technology sector. Netflix, PayPal, and even Tesla have all announced job cuts over the last few months, with others announcing hiring freezes as demand softens and costs increase.
Alphabet Narrowly Misses Expectations 🤏
Decreased marketing budgets, currency fluctuations, and tough year-over-year comps saw Alphabet’s (GOOG) revenue growth fall to the slowest pace in two years. The goliath of the internet narrowly missed expectations across the board but investors don’t seem too worried, the stock is up almost 4% in pre-market trading.
Earnings per share were $1.21 vs $1.28 expected while revenue was $69.69 billion vs $69.9 billion expected.
Advertising revenue increased just 12% year-over-year to $56.3 billion as advertisers undoubtedly cut excess spending in the face of inflation. Most notable of all, YouTube, which outperformed during the pandemic, saw only a 5% increase in advertising sales. But to be fair, in the same quarter last year, YouTube’s revenue surged 84% so it’s only natural for growth to slow down. The video-sharing platform is also facing increased competition from TikTok.
Google Cloud also fell short of revenue expectations, missing estimates by about 2%. However, revenue was up 35% from the same time last year. Google Cloud is hot on the heels of sector leader Azure, which is controlled by fellow tech giant Microsoft. Azure reported 40% growth in the same period so it would appear Google is keeping pace.
Finally, management declined to give a revenue forecast for the full year, citing uncertain economic conditions. They also stated that while Alphabet’s headcount increased 21% year-over-year this quarter, hiring and strategic investments would be slowed until the end of 2023.
Chipotle Soars As Price Hikes Drive Profits 🌯
Shares in American restaurant chain Chipotle Mexican Grill (CMG) are up over 9% in pre-market trading following the company’s earnings report yesterday evening.
Despite reporting lower-than-expected sales, a series of price hikes boosted profits enough to leave investors wanting more. Revenue for the quarter came in at $2.21 billion against estimates of $2.24 billion, while adjusted earnings per share (EPS) hit the $9.30 mark — beating Wall Street’s prediction of $9.04.
Inflation has certainly taken its toll on the wider restaurant industry, yet Chipotle's CEO Brian Niccol lauded the fact that “fortunately for Chipotle, you know, the majority of our customers are a higher household income consumer,” adding some inflation resistance to its earnings.
Chipotle was founded in 1993 and specializes in burritos, tacos, and bowls — all from a limited menu that offers fresh, local, and organic ingredients whenever possible. A series of illness reports and some bad management decisions in 2015 undid a lot of the good work done by Chipotle since its IPO in 2006.
Since then, the firm has been working hard to rediscover its magic and, under CEO Brian Niccol, has driven record sales and transformed back into a reputable stock. However, recent controversy surrounding the permanent closure of a store that filed to unionize has piqued investors' interest, with questions being asked about the firm’s commitment to its own mission of “food with integrity.”