Spotify announced on Monday that it would be reducing its workforce by almost a fifth, marking its third round of layoffs this year. The company has been struggling to achieve consistent profitability due to its aggressive investments in expanding beyond music streaming into areas such as podcasting.
Daniel Ek, Spotify’s chief executive, stated in a note to employees posted on the company’s website that the platform needed to “rightsize” in response to a “very different environment.” Approximately 1,500 people, or 17 percent of its staff, will be let go by the Stockholm-based company.
“Economic growth has slowed dramatically and capital has become more expensive,” Ek said. “Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.”
Despite being the largest music streaming platform, Spotify has struggled to turn a profit due to its licensing deals with record labels and music publishers. The company has expanded into new areas such as podcasting and audiobooks, including acquisitions of podcast studios Gimlet and The Ringer, as well as striking expensive deals with well-known figures like Barack and Michelle Obama, Prince Harry, and Meghan. However, these efforts have not translated into financial success.
While these expansions have helped Spotify attract listeners and subscribers, they have not resulted in financial improvement. In the first nine months of 2023, Spotify reported a loss of $462 million, which was more than double the loss in the same period in 2022.
However, the company achieved a small profit in the last quarter, its first in over a year, which its chief financial officer, Paul Vogel, referred to as “an important inflection point for the business.”
Spotify had 226 million paying subscribers by the end of September and is projected to add 30 million for the full year, 50 percent more than initially expected in 2023. The company also recently raised subscription prices in over 50 countries.
Additionally, Spotify has over 360 million monthly active users whose accounts are supported by advertising. While this segment has been growing faster than paid subscriptions, it generates lower revenue at a decreased profit margin for the company.
These job cuts mark the largest announced by Spotify this year, following a reduction of about 200 jobs, including many in podcasting, in June, as well as a further 600 layoffs in January.
Spotify’s decision to cut jobs comes at a time when the technology industry has faced challenges due to the end of a decade of historically low interest rates that fueled growth. This has prompted major tech companies like Amazon, Carvana, and Salesforce to trim costs and lay off employees.
As part of its severance package for the job cuts announced on Monday, Spotify stated that the average employee would receive approximately five months of pay.
Spotify’s shares, listed on the New York Stock Exchange, rose in premarket trading, extending the gains made by the company this year. This has partly reversed a prolonged decline from its peak in early 2021, with the company’s share price more than doubling in value this year.
