Shopify narrowing its ambition, sells Deliverr, other pieces

NEW YORK (AP) — Shopify, the e-commerce company viewed as a growing competitor to Amazon, is selling the two biggest pieces of its fulfillment network and abandoning its logistics ambitions.

It’s a remarkable reversal after the Canadian company’s multiyear effort to build its own warehousing and delivery services. But investors welcomed the company’s move to focus more on its retail business on Thursday by sending its stocks as high as 15% in premarket trading.

Shopify also said in its earnings report that it pulled in $1.5 billion in revenue for the first quarter, which outperformed Wall Street’s expectations. It reported a profit when analysts had been expecting a loss.

Most of Shopify’s fulfillment assets will be acquired by logistics provider Flexport in an all-stock deal that also includes the sale of the shipping service company Deliverr, the company said Thursday. Shopify bought Deliverr just last year for $2.1 billion.

In exchange, the e-commerce giant will receive a stake of about 13% in Flexport, bringing its total ownership in the privately held company up to the high-teens, the company said. Flexport will become the official logistics partner for Shopify, which provides e-commerce tools for merchants. It will also acquire Shopify’s warehouses.

On Thursday, the British grocery-tech company Ocado Group said it was buying another major part of the company’s network – the warehouse automation firm 6 River Systems, or 6RS.

“This is about removing distractions,” said Rick Watson, CEO and Founder of RMW Commerce Consulting. “Long-term the right decision, but short-to-medium term it is raises many more questions about Shopify’s management team.”

Shopify’s logistics network is comprised of Deliverr, 6RS and the SFN App, which allows merchant to track shipments.

The sell offs come as the company based in Ottawa, Ontario, is aiming to cut down on costs amid a post-pandemic slowdown in online shopping and high inflation.

The moves will also allow it to offload employees it acquired under the deals. In a blog post Thursday, the company said it will be about 20% smaller. It did not provide additional details, but noted those affected will receive 16 weeks of severance pay and medical benefits. Last year, Shopify cut 10% of its workforce and reportedly laid off dozens of other employees before and after that announcement.

Shopify is returning to its roots, President Harley Finkelstein said an interview addressing only the Flexport deal.

“Fundamentally, this lets Shopify get back to what we do better than anyone on the planet, which is the retail side of the business,” Finkelstein said.

Meanwhile, Flexport CEO Dave Clark said he believes Shopify is doing “some of the hardest things the leadership team has to do, which is change direction when you learn new information.”

Flexport, which was last valued at $8 billion, declined to share more information about its financials. But analysts say its valuation has likely gone down in recent months given the tough investment environment.

Even if the company were still valued at $8 billion, Shopify is selling the assets at a loss, given the $2.1 billion it paid just for Deliverr last year. Under the prior valuation, the e-commerce company would get roughly $1 billion worth of Flexport stock.

Shopify and a representative for Ocado Group declined to provide the terms of that deal. The e-commerce company had purchased 6 River Systems in 2019 for $450 million.