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Tuesday, June 25, 2024

Spotify Announces Workforce Reduction of 17% in Third Round of Layoffs in 2023

In its latest move to address profitability challenges, Spotify, the Stockholm-based music streaming giant, has announced a significant workforce reduction, cutting nearly a fifth of its staff. This marks Spotify’s third round of layoffs in 2023 as the company seeks to adapt to a changing environment and streamline its operations.

Spotify’s Chief Executive, Daniel Ek, outlined the need to “rightsize” the company in response to a “very different environment.” Approximately 1,500 employees, or 17% of the workforce, will be let go as the company grapples with economic uncertainties and increased capital costs. Ek noted that despite efforts to reduce costs over the past year, the current cost structure remains too substantial.

The move comes amid broader shifts in the technology industry, which is reevaluating its trajectory after a decade of rock-bottom interest rates that fueled growth. Industry giants like Amazon, Meta, and Salesforce have been compelled to cut costs and shed jobs. Ek emphasized that Spotify’s decision is about “preparing for our next phase, where being lean is not just an option but a necessity.”

Despite being the largest music streaming platform globally, Spotify has faced challenges in achieving consistent profitability. The company’s licensing deals with record labels and music publishers, which have shaped the economics of the streaming service, have posed hurdles. Spotify’s expansion into podcasting and other areas, such as audiobooks, has not yet translated into a significant financial breakthrough.

The company’s financial reports for the first nine months of 2023 reveal a loss of $462 million, more than double the loss in the same period in 2022. However, Spotify achieved a small profit in the last quarter, marking an important inflection point for the business, according to Paul Vogel, the company’s Chief Financial Officer.

Spotify’s strategic shifts, including podcast studio acquisitions like Gimlet and The Ringer, as well as high-profile deals with figures like Barack and Michelle Obama and Prince Harry and Meghan, have expanded its audience base. The company had 226 million paying subscribers at the end of September, with plans to add 30 million by year-end.

While Spotify’s paid subscriptions contribute significantly to revenue, the company also relies on over 360 million monthly active users supported by advertising. The ad-supported segment has been growing faster than paid subscriptions but generates less revenue at a lower profit margin for the company.

The job cuts announced on Monday are the most significant Spotify has made in 2023. Earlier in the year, approximately 200 jobs, including many related to podcasting, were cut in June, followed by an additional 600 employees in January.

As part of the severance package for the latest job cuts, Spotify mentioned that an average employee would receive about five months of pay. Analysts note that investors are not overly concerned about the job reductions impacting the company’s core operations, as the move is seen as a strategic effort to enhance profitability.

Benjamin Black, an analyst at Deutsche Bank, stated that the layoffs were not a surprise, although they came sooner and were more extensive than expected. Investors have responded positively to the announcement, with Spotify’s shares on the New York Stock Exchange jumping more than 7% on Monday. The company’s share price has more than doubled in 2023, reflecting investor confidence in Spotify’s commitment to reaching its profit goals.

“Investors’ minds, this represents a turning point in terms of how serious the company is” about achieving profitability, noted Black. The layoffs underscore Spotify’s determination to navigate challenges and streamline operations in the pursuit of sustained financial success.

David Faber
David Faber
I am a Business Journalist of The National Era
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