In a strategic move described as a “crucial step” towards achieving greater efficiency, Spotify’s co-founder and CEO, Daniel Ek, announced a significant workforce reduction, marking the third round of layoffs within a year. The company is set to cut 17% of its global workforce, translating to approximately 1,500 jobs, following previous reductions of 6% in January and a targeted trimming in its podcast division in June. Ek emphasized the necessity of rightsizing operational costs, citing a gap between financial goals and current expenses. Despite a positive third-quarter earnings report, Ek deemed this substantial action imperative for the company’s objectives.
In a memo to staff, Ek acknowledged the surprise factor of such a sizable reduction but underscored its alignment with the company’s vision. He urged a clear, objective assessment of Spotify’s trajectory, pointing out the necessity to shift focus towards real impact, with an emphasis on becoming “relentlessly resourceful.” The company’s recent investments in team expansion, content enhancement, and new verticals contributed to robust growth but led to an operational size considered unsustainable in the current environment.
Spotify’s third-quarter results showed an 11% increase in revenues to 3.4 billion euros ($3.6 billion), with operating income improving by over 32 million euros ($34 million). Ek stressed the need for a leaner approach as Spotify moves into its “next phase,” asserting that while bold bets, like its podcasting initiatives, will persist, a more focused strategy prioritizing profitability is paramount.
As part of the workforce reduction, affected employees will receive a baseline of five months of severance pay and additional benefits, resulting in an estimated charge of €130-145 million ($141-$157 million) in the fourth fiscal quarter. Ek expressed gratitude to departing employees for their dedication and contributions, emphasizing the lasting impact on millions of artists, creators, and users worldwide. Despite the organizational changes, Spotify shares experienced a pre-market trading increase of 6%, reaching over $191. Further details and discussions on the reductions are expected in an upcoming “Unplugged” session scheduled for Wednesday.