Spotify Plans Workforce Reduction by 17%
Spotify, the popular music streaming platform, is implementing a 17% reduction in its workforce. This decision is driven by a focus on efficiency and better cost management. CEO Daniel Ek has assured departing employees that the company will provide support during this transition.
The music streaming service based in Stockholm, with around 9,200 employees, is undergoing layoffs. This is the third round of job cuts announced this year.
Spotify’s CEO, Daniel Ek, has pledged to assist affected employees by offering payments based on their tenure and support in finding new job opportunities.
Spotify’s CEO, Daniel Ek, shared in a blog post that the company is making adjustments. Despite Spotify’s success, he mentioned challenges in the global economy, where things like obtaining funds for business growth have become more difficult. As a result, Spotify is reassessing its spending and evaluating the number of people it needs for its operations.
On Monday, Daniel Ek mentioned that the economy is slowing down, and it’s more costly to get money. He emphasized that Spotify is facing the same challenges as everyone else in dealing with these economic realities.
In 2023, major tech companies such as Meta, Microsoft, Amazon, and Alphabet underwent significant changes. They had to let go of many employees due to the increase in interest rates. Investors were closely watching how these companies managed to cut costs to protect their profits.
Spotify, a major music streaming company based in Stockholm, holds a global reputation and competes with prominent U.S. counterparts. In response to a slowdown in the global economy, Spotify has become more cautious about its significant investments in podcasts. This caution is evident, especially after a deal with Prince Harry and the Duchess of Sussex ended in disagreement this year.
Despite this caution, Spotify continues to maintain valuable podcasting partnerships. Notably, they have a controversial arrangement with Joe Rogan, and they also collaborate with influencer Emma Chamberlain and the comedian Trevor Noah.
In October, Spotify announced a new plan to let users enjoy up to 15 hours of audiobooks per month, aiming to increase revenue and compete with platforms like Audible, owned by Amazon.
Daniel Ek, the CEO of Spotify, mentioned that the company took advantage of low borrowing costs in 2020 and 2021 when interest rates dropped due to the pandemic. However, he acknowledged a change in the economic situation, stating that despite efforts to cut costs, the company still has too many expenses.
With a current valuation exceeding $35 billion on the New York Stock Exchange, Spotify has attracted the attention of ValueAct, an investment company based in San Francisco, which has acquired a $220 million stake in the music streaming giant.
ValueAct’s CEO, Mason Morfit, commented that Spotify has been facing high costs and appeared to be designed for a more prosperous period. In July, Spotify increased its prices to capitalize on its growing user base. This strategy proved successful, with Spotify reporting a profit of €65 million in the third quarter of 2023 and a total revenue of €3.4 billion during that period.
Spotify’s stock rose by 7% before the market opened, surpassing $180. Although the company’s value has more than doubled this year, it has not yet reached its early 2022 level or the record high above $360 in February 2021, when tech companies benefited from pandemic rate cuts.
As of the end of the third quarter of 2023, Spotify reported a workforce of 9,400 employees. The company had previously reduced its workforce by 6% in January and an additional 2% in June. Employees affected by these changes will receive an average of five months of severance pay, along with unused holiday pay, as stated by CEO Ek.
Ek also noted that having a smaller workforce will enable the company to invest its profits more strategically into the business. He emphasized, “Today is a challenging but crucial day for the company.”