There have been a lot of surprising companies paring back their payrolls this year. Market darlings that seemed to have clear runways for years of growth have announced layoffs. Rightsizing your workforce is never a good look. It does quite the number on corporate morale, too. However, it doesn't mean that you should "lay off" the stocks.
Shopify (SHOP 0.23%), Wayfair (W -1.94%), and Netflix (NFLX -9.09%) have all stunned the market by announcing plans to eliminate personnel. It doesn't mean that the stocks are toast. Shopify, Wayfair, and Netflix are leaders in their respective niches. Let's see why they could be potential buy candidates here.
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1. Shopify
There was a time when the shares of companies announcing layoffs would move higher, as the market would be relieved to see the top brass take action to get costs under control. Things didn't play out that way when Shopify announced that it would be cutting 10% of its staff late last month, as the stock took a 14% hit that day alone.
Shopify has proven mortal. The stock is now trading 80% below the all-time high it hit just nine months ago. The company's initial pandemic projections that years of heady growth were coming had it invest aggressively in building out its offerings. The deceleration has been rough. Revenue rose a mere 16% in its latest report, well short of analyst expectations. Gross merchandise volume rose a mere 11%.
Business has slowed, and that makes the stock's valuation -- despite trading for just a fifth of its November peak -- a sticking point with some value-minded investors. But Shopify has carved out a lucrative niche in the realm of online commerce. It's empowering merchants, and that's a long-term approach to success.
2. Wayfair
The latest one-time highflier to pull on the recliner handle is Wayfair. The online furniture retailer revealed in a regulatory filing on Friday morning that it's reducing its workforce by 870 employees. It had announced plans to realign investment priorities and manage its operating expense earlier, but now it's real. The layoffs cover 5% of its global workforce and 10% of its corporate team.
Wayfair became one of the market's biggest winners during the early stages of the pandemic, as local showrooms weren't open and folks wanted to hunker down at home with refreshed furnishings. Revenue growth would spike from 35% in 2019 to 55% in 2020, only to post negative revenue growth last year. The company has now rattled off five consecutive quarters of double-digit-percentage declines on the top line.
It's not as devastating as it might seem. Revenue did clock in 15% lower in its latest quarter than it did a year earlier, and 24% below where it was two years ago when the country's initial shutdown sent folks scrambling for e-commerce solutions. However, Wayfair's sales are still 40% higher than they were three years ago.
The slowdown is natural after all of the binge buying of home essentials through early 2021, but when we need new furniture, it's a safe bet that Wayfair will be a top consideration. Adjusting its workforce will help tackle its lack of profitability.
3. Netflix
It's not just the master chefs on some of the cooking shows you see on Netflix doing a lot of cutting these days. Netflix has had at least two rounds of small layoffs in May and June, shortly after stunning investors by reporting a sequential decline in global paid subscribers for the first quarter.
The climate is kinder now. It lost less than half as many subscribers as it initially forecast for the second quarter, and Netflix is projecting a return to sequential subscriber growth for the current quarter. Netflix is also working on new initiatives that include gaming, theatrical releases for high-profile flicks, and rolling out a more economical ad-supported tier. With more than 220 million paid accounts worldwide -- and now growing -- it's easy to believe that the worst is over for the top dog of streaming-service stocks.
