The world’s leading audio platform Spotify announced on Monday that it would cut staff by “around 17%”, or around 1,500 people, in order to reduce costs and become sustainably profitable.
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The world’s leading audio platform Spotify announced on Monday that it would reduce its workforce by “around 17%,” or around 1,500 people, to reduce its costs amid slowing economic growth.
This is the third wave of staff cuts after the Swedish group announced 600 jobs in its podcast division in January and 200 in June.
These job cuts are part of the wave of layoffs that has hit global “tech” since the beginning of 2023, especially American giants such as Meta, Alphabet and Amazon.
“I recognize that a decline of this magnitude may seem surprising to many given the recent positive earnings report and our performance,” general manager Daniel Ek wrote in a letter to employees seen by AFP.
In the third quarter, the group posted a rare net profit of 65 million euros, compared with a loss of 166 million a year ago, on the back of a 26% increase in the number of its active users to 574 million. The goal is to reach 600 million active users by the end of the year.
These layoffs should allow “Spotify to align with our future goals and ensure we are well positioned to meet the challenges ahead,” he said in that letter.
According to Mr. Ek, in 2020 and 2021, the company “took advantage of the opportunity presented by lower capital costs and invested significantly in team expansion, content enhancement, marketing and new vertical markets.”
“However, we are in a very different environment today and despite our efforts to reduce costs over the last year, our cost structure is still too high to achieve our targets,” he added, highlighting “the economic growth, which has increased significantly has slowed down”.
In 2022 and 2023, Spotify, which is listed on the New York Stock Exchange, was “more productive but less efficient.” We have to be both at the same time.
High investments
Since its launch in 2006, Spotify has continually invested to fuel its growth by expanding into new markets and then offering exclusive content such as podcasts, in which the company has invested more than a billion dollars.
The company “employs too many people in support roles (…) instead of contributing to opportunities that have a real impact,” says Ek.
In 2017, the company employed around 3,000 people, a number that more than tripled to around 9,800 people by the end of 2022.
Since its inception, despite its success in the online music market, the platform has never achieved a net profit throughout the year and has only occasionally posted quarterly profits.
In the third quarter, Spotify grew its paid subscribers, which make up the majority of its revenue, by 16% to 226 million subscribers.
As a result of these job cuts, Spotify is now forecasting an operating loss of between 93 and 108 million euros for the final quarter, compared to an originally forecast profit of 37 million.
These job cuts were predictable, but “their magnitude surprised me,” said Tomas Otterbeck, head of equity research at Nordic broker Redeye at Swedish agency TT. He believes research and development will be hit hardest by these cuts.
Ek explains that he has considered “smaller staff reductions in 2024 and 2025.”
“But given the gap between our financial goals and our operating costs, I have decided that taking significant action to right-size our costs is the best option to achieve our goals.”
In the US, tech giants Meta and Microsoft have announced plans to lay off at least 10,000 employees each.
In January, the online retail giant Amazon announced that it would cut more than 18,000 jobs, and Google’s parent company Alphabet would cut around 12,000 jobs.