Spotify CEO Daniel Ek announced a "significant step change" for the music-streaming business on Monday, stating that around 1,500 employees will be laid off in a third round of job cuts within a year. In a letter to staff posted on the company's website, Ek acknowledged the impact of slowed economic growth and increased capital costs on Spotify's operations.
The company had considered making smaller cuts in the following year and 2025. However, given the significant disparity between our financial objectives and current operational costs, I concluded that taking substantial measures to align our costs was the most effective way to achieve our goals," he explained.
"In all honesty, a number of intelligent, talented, and dedicated individuals will be leaving us."
Ek stated that individual meetings with affected employees would occur before the end of the day on Tuesday. On average, employees will receive around five months of severance pay.
In January, Spotify (SPOT), a company with over 9,000 employees, laid off over 500 employees, following the trend of tech companies like Microsoft (MSFT) and Amazon (AMZN) in reducing headcount due to the global economic slowdown. In June, Spotify also let go of 200 employees from its podcasting division.
Major tech companies ramped up recruitment efforts during the Covid-19 pandemic to meet the increased demand for services like online shopping and videoconferencing from households and businesses. However, inflation and higher interest rates have impacted consumer spending, limited access to finance, and increased expenses, prompting many of them to implement significant layoffs.
Spotify CEO Daniel Ek
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Spotify has experienced significant growth in the past year, but according to Ek, the company has become less efficient and has strayed from the resourcefulness that characterized its early days as a tech start-up. He also noted that there are too many people dedicated to support work instead of focusing on delivering for content creators and consumers.
Despite gaining 6 million new subscribers from June to September, which is 2 million more than forecasted, Spotify only managed to make a profit of â¬32 million ($34.8 million) during that time. This is an improvement from the â¬228 million ($248 million) loss in the same period last year. The company currently has a total of 226 million subscribers.
"We still have a lot of work to do to become both profitable and efficient... we need to be resourceful and innovative," Ek stated.
"We are not stepping back, but strategically reorienting. This significant reduction will require us to change our approach to work, and we will provide more information on the implications in the coming days and weeks."
