Music streaming giant Spotify has announced a significant workforce reduction, planning to lay off approximately 1,500 employees, constituting 17 percent of its workforce. This move follows previous job cuts, with 600 employees let go in January and an additional 200 in June. Despite these layoffs, Spotify’s U.S.-listed shares surged by around 11 percent to approach a two-year high of $200.46 in early trading.
In a letter to employees, Spotify CEO Daniel Ek explained that the company had expanded its workforce in 2020 and 2021 due to lower capital costs. While output increased, much of it was attributed to having additional resources. The layoffs aim to bring down costs and increase efficiency.
Spotify anticipates incurring charges of about 130 million euros to 145 million euros in the fourth quarter due to these layoffs. The majority of the cash component of these charges will be recorded in the first and second fiscal quarters of 2024. The company now expects a fourth-quarter operating loss between 93 million euros and 108 million euros, a significant shift from its prior forecast of an operating profit of 37 million euros.
Despite recent positive earnings and a third-quarter profit, Ek emphasised the need for both productivity and efficiency. Spotify had invested over a billion dollars in its podcast business, securing deals with celebrities such as Kim Kardashian, Prince Harry, and Meghan Markle, with a goal to reach a billion users by 2030.
Affected employees will be informed starting Monday and will receive approximately five months of severance pay, vacation pay, and healthcare coverage for the severance period. Ek acknowledged that a reduction of this magnitude might seem substantial given the recent positive earnings report, but he deemed it necessary to align operational costs with financial goals. The alternative of smaller reductions throughout 2024 and 2025 was considered but ultimately dismissed in favour of a more substantial action to rightsize costs and achieve company objectives.
