Popular digital music streaming service Spotify, has laid off about 1,500 of its employees (17% of its headcount), in a third round of job cuts in less than a year, amidst rising capital costs.
In a letter to employees, Spotify CEO Daniel Ek said the company hired more workers in 2020 and 2021, noting that the downsizing of the workforce is crucial for the company to face the challenges ahead.
He also cited the slow economic growth and rising capital costs among reasons for the job cuts, stating that the firm took advantage of the lower-cost capital in 2020 and 2021 to invest significantly in the business.
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In his words,
“By most metrics, we are more productive but less efficient. We need to be both. We debated making smaller reductions throughout 2024 and 2025. Yet considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our cots was the best option to accomplish our objectives”.
Spotify will start informing affected employees on Monday about its latest decision. Employees will get about five months of severance pay, vacation pay, and healthcare coverage for the severance period. Also, the company will offer immigration support to employees whose immigration status is connected with their employment.
Spotify’s recent layoff is occurring for the third time this year after it has let go several amounts of its workers. In January, the company announced the layoff of 6% of its workforce, roughly 600 employees.
Later in June, it announced the layoff of 200 workers from its podcast division. Spotify has generally prioritized growth over quarterly profits throughout its history, but reports disclose that investors have been increasingly pushing for profitability over the past year.
During an investor day event last year, Spotify CEO Daniel Ek said that he intends for Spotify to be profitable by 2024. Although the company posted a quarterly profit in its last earnings release, it reported losses of €462 million (around $502 million) in the first nine months of this year.
While Spotify has enjoyed robust growth over the past year, the company has become less efficient and has moved away from the resourcefulness that defined its early days.
In recent years, Spotify has invested more than a billion dollars to build up its podcast business and signed up celebrities such as Kim Kardashian, Prince Harry and his wife. As of September 2023, the music streaming service, had over 590 million monthly active users, including 226 million paying subscribers.
Spotify is available mostly in Europe, as well as Africa, America, Asia, and Oceania, with a total availability in 184 markets. Its users and subscribers are based largely in the US and Europe, jointly accounting for around 53% of users and 67% of revenue. The company hopes to reach a billion users by 2030.
Spotify on Monday announced its third round of layoffs this year. The Stockholm-based music streaming business said it would cut about 1,500 people, or 17% of its staff, across the company. Spotify has invested further into podcasts and audiobooks but has yet to reap the rewards of its expansion. “Economic growth has slowed dramatically and capital has become more expensive,” said CEO Daniel Ek. While the platform is the largest of its kind, it “has long struggled to be profitable because of the terms of licensing deals it has with record labels and music publishers,” according to The New York Times. Spotify also said Monday that those leaving would receive about five months of severance pay. Some Spotify employees affected by the layoffs are posting on LinkedIn, while other members below are offering help or advice. (LinkedIn News)
Spotify set to cut staff by around 17%
Spotify, the world’s leading music streaming service, announced today that it will reduce its global workforce by approximately 17%, affecting around 1,200 employees. The company said that the decision was made as part of a strategic restructuring plan to improve its profitability and competitiveness in the rapidly changing digital music market.
Spotify CEO Daniel Ek said in a statement that the layoffs were “a difficult but necessary step” to ensure the long-term sustainability and growth of the company. He added that Spotify would provide “generous severance packages” and “outplacement support” to the affected employees and thanked them for their contributions and dedication.
Spotify said that the restructuring plan would focus on streamlining its operations, optimizing its product portfolio, and investing in new technologies and markets. The company also said that it would continue to hire in strategic areas such as podcasting, content creation, and data science.
Spotify’s shares fell by 4.5% to €175.6 in early trading on Tuesday, following the news of the layoffs.
As part of a restructuring plan to improve its profitability and competitiveness. The company said the layoffs will affect mainly its marketing, sales and content teams, and will result in a one-time charge of €30 million in the fourth quarter of 2023. The news sent Spotify’s shares down by 4.5% to €175.6 on Tuesday morning, as investors reacted to the unexpected move and its implications for the company’s growth prospects.
Spotify, the world’s leading music streaming service, announced today that it will reduce its global workforce by approximately 17%, affecting around 1,200 employees across various departments and regions. The company said that the decision was made as part of a strategic restructuring plan to streamline its operations and focus on its core business and growth opportunities.
Spotify CEO Daniel Ek said in a statement: “We are grateful for the contributions of our talented and dedicated team members who have helped us build Spotify into the amazing platform that it is today. However, we also have to make some tough choices to ensure that we remain competitive and agile in a fast-changing and dynamic industry. This is why we have decided to implement a workforce reduction that will affect some of our colleagues around the world.”
Ek added that the company will provide severance packages and outplacement support to the affected employees, as well as career coaching and counseling services. He also said that the company will continue to invest in its product development, content acquisition, marketing and customer service, as well as in new markets and regions.
The restructuring plan is part of Spotify’s strategy to improve its profitability and competitiveness in the fast-growing music streaming industry. The company faces fierce competition from rivals such as Apple Music, Amazon Music and YouTube Music, as well as from emerging players such as TikTok and Clubhouse. Spotify also has to deal with high royalty payments to music labels and artists, which account for about 70% of its revenue.
By reducing its headcount and overhead costs, Spotify hopes to increase its operating margin and free cash flow, which will enable it to invest more in innovation and growth. The company also aims to diversify its revenue streams by offering more services and features to its users, such as podcasts, video, live audio and e-commerce.
Spotify has also been struggling to turn a profit, despite having over 365 million monthly active users and 165 million premium subscribers as of June 2021. The company reported a net loss of €20 million ($23 million) in the second quarter of 2023, compared to a net income of €1 million ($1.2 million) in the same period last year.
Spotify said that the workforce reduction will not affect its financial guidance for the third quarter and full year of 2021, which it will announce on October 28. The company expects to generate revenue of €2.31 billion to €2.51 billion ($2.7 billion to $2.9 billion) in the third quarter, and €9.11 billion to €9.51 billion ($10.6 billion to $11 billion) for the full year.