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Spotify Announces Layoffs of 17% of Workforce

2023.12.05

 

Key Takeaways

  • Spotify is laying off 17% of its workforce to reduce costs and adjust to a growth slowdown.
  • The company’s focus shifts towards profitability amidst challenging economic conditions.

Spotify’s Significant Workforce Reduction

Spotify, the renowned music streaming service, experienced a notable share surge by more than 7% following the announcement of a significant workforce reduction. CEO Daniel Ek told employees that this step is part of a broader strategy to “rightsize” the company’s costs. Ek highlighted the rapid expansion in 2020 and 2021, attributing it to the then-easy availability of capital, which led to an oversized team.

Impact on Employees

The layoffs will result in approximately 1,500 job cuts, although Spotify did not confirm the exact number. This decision comes as the latest in a series of reductions, aligning with the broader trend of cost-cutting in the tech industry, catalyzed by higher interest rates and an uncertain economic outlook.

Spotify’s Financial Context

Despite reporting a profit of 65 million euros in the third quarter, attributed to reduced marketing and personnel expenses, Spotify needs to adjust its business model. The company, which has diversified into podcasts and audiobooks, also raised its subscription prices earlier this year.

Analysts’ Perspective

Analysts from Wells Fargo perceive these layoffs as part of Spotify’s strategy to meet its profitability targets, rather than a mere response to economic challenges. They predict that the headcount reduction could lead to nearly a 2% decrease in operating expenses for 2024.

 

Earlier in the year, Spotify reduced its workforce by 6%, equating to around 600 employees, followed by another cut of 2% in June, affecting approximately 200 roles. Despite these layoffs, Spotify’s shares have seen a significant rise this year, more than doubling in value.

 

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