General
May 4, 2023
4 minutes read

E-Commerce Giant Shopify Divests Logistics Operations

Shopify (NYSE: SHOP), the Canadian e-commerce giant, is bowing out of the logistics business it began building in 2019. In…

Shopify (NYSE: SHOP), the Canadian e-commerce giant, is bowing out of the logistics business it began building in 2019. In its latest quarterly report, the company announced that it would sell its logistics operations to Flexport, a supply chain startup, and focus on its e-commerce software operations.

Shopify will hand over its logistics business to Flexport for roughly 13% equity interest in the venture-backed supply chain company. The deal marks a big reversal for Shopify, which spent years building a logistics and fulfillment network for retailers using its platform.

The sale to Flexport includes Deliverr, an e-commerce fulfillment service that Shopify acquired in May 2022 for $2.1bn in cash and stock. Flexport has raised over $2bn in equity and debt financing and was valued at $8bn post-money in its last fundraising round. A 13% equity stake at that valuation means Shopify is losing money on the sale, although there’s a chance of the stake increasing in value as Flexport expands its business.

Shopify will also sell 6 River Systems, a warehouse robot maker it acquired in 2019, to Ocado Group (LON: OCDO), a British online grocery retailer. Shopify paid $450mn for 6 River Systems and will sell it for an undisclosed price. Ocado said the price didn’t meet its disclosure threshold, suggesting it’s significantly less than what Shopify paid.

Alongside the divestment from its logistics business, Shopify also announced laying off 20% of its staff. According to regulatory filings, the company had 11,600 employees at the end of 2022, meaning the layoffs will affect about 2,300 employees. Shopify had previously laid off 10% of its workforce, or 1,000 employees, in June 2022.

In 2022, the stock market was riding high. Raising money from investors was relatively easy, and companies were willing to fund bold bets to expand their operations. However, it’s a different story in 2023, when venture fundraising is at a nine-year low and companies are under increasing pressure from investors to show profits.

Given the current market situation, it makes sense that Shopify is divesting its logistics business to focus on selling software for retailers to build online stores and process payments. The company reported $1.5bn in revenue in this year’s first quarter, mostly from subscriptions and payment processing fees. It reported a free cash flow of $86mn in the quarter, compared to a negative free cash flow of $41mn in the same quarter last year.