Here’s what Shopify’s layoffs mean for SHOP’s stock

It is undeniable that Shopify (NYSE:SHOP) the stock won a grand slam with the company’s quarterly results, released earlier this month.

It’s also encouraging to know that Shopify plans to focus on its core e-commerce business and will cut costs by reducing its workforce. On the other hand, investors might want to slow down with SHOP stocks if they feel they are currently overbought.

Shopify is one of the few e-commerce companies in the United States, so it’s a big deal when the company announces its quarterly financials. You could even say that Shopify’s growth is a sign that the US economy is thriving, or at least recovering.

Curious investors will surely want to know about Shopify’s plans for the near future. If Shopify can stay competitive and focus on e-commerce without excessive distractions, it could be a win-win situation for buyers, merchants, and shareholders.

Layoffs, sale of logistics assets and Shopify

Without a doubt, Shopify’s first quarter 2023 financial results, released on May 4, were very impressive, and we’ll dive into the data in a moment. However, two pieces of news definitely caught the attention of investors.

First and foremost, Shopify plans to reduce its workforce by around 20%. That’s not good news for anyone getting laid off, but it does mean Shopify can reduce overhead and hopefully be a more profitable business.

Additionally, Shopify has agreed to sell most of its logistics business to Flex port, a global logistics company. In return, “will receive shares representing a 13% stake in Flexport, in addition to its existing stake.”

Hence, Shopify is slimming down in several ways and focusing on e-commerce which has made the company a household name.

Additionally, Shopify can still make money if its old logistics assets thrive under Flexport’s control. It’s a sensible strategy that Shopify stakeholders should appreciate.

Is SHOP stock overbought?

Before moving on to other topics, let’s break down Shopify’s first quarter 2023 results. The company’s adjusted earnings of 1 cent per share beat analysts’ consensus forecast of a loss of 4 cents per share.

Additionally, Shopify reported quarterly revenue of $1.5 billion, up 25% year over year. That result topped Wall Street’s call for $1.4 billion in quarterly revenue.

And that’s not all. Analysts predicted that Shopify would see gross merchandise volume of $47.7 billion. However, the actual result was $49.6 billion, up 15% year over year. Shopify’s free cash flow has improved significantly. The company had negative free cash flow of $41 million in the first quarter of 2022, but then reported positive free cash flow of $86 million in the first quarter of 2023.

These are exceptional results. Still, Atlantic Equities analyst Kunaal Malde has one concern. Clearly, Malde believes the market “reacted quickly” to the “positive developments” surrounding Shopify. The Atlantic Equities analyst downgraded SHOP stock on valuation.

Specifically, Malde downgraded its rating on Shopify stocks from “overweight” to “neutral.” However, interestingly, Malde raised his price target on the stock from $55 to $65. So, maybe the analyst isn’t bearish on Shopify despite his valuation concerns.

Stay small or just wait with SHOP’s stock

Shopify’s layoffs appear to be part of the company’s strategy to slim down and stay focused. This, along with Shopify’s excellent quarterly results, bodes well for the company.

If Malde’s concerns about Shopify’s rating resonate with you, there are several approaches you can take. One idea is to keep your position in the SHOP stock small and consider increasing it if the stock drops.

Or, you can just be patient and do nothing, and re-evaluate your strategy if Shopify’s stock price drops. In the meantime, stay tuned for updates as Shopify pursues a smart strategy to cut costs and focus on e-commerce.

As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.