Source: AFP
Music streaming giant Spotify said on Monday it will cut its workforce by about 17 percent in an effort to cut costs amid “dramatically” slower economic growth.
The announcement comes after a rare quarterly net profit of 65 million euros in October, compared with a loss of 166 million for the same period last year, and after a 26% increase in active users for the third quarter to 574 million.
About 1,500 people will leave the company, Spotify said.
It was the latest in a series of layoffs announced in the tech industry, which is cutting tens of thousands of jobs after a boom during the Covid pandemic lockdown.
“I realize that for many, a reduction of this size will be surprisingly large given our recent positive earnings report and performance,” CEO Daniel Ek wrote in a letter to employees seen by AFP.
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He said that in 2020 and 2021, the Swedish company “took advantage of the opportunity presented by lower-cost capital and invested significantly in team expansion, content improvement, marketing and new verticals.”
Ek said the company is now in a very different environment, noting that “economic growth has slowed dramatically and capital has become more expensive.”
“Despite our efforts to reduce costs over the past year, our cost structure for where we need to be is still too large,” he added.
Ek said that in 2022 and 2023, Spotify, which is listed on the New York Stock Exchange, was “more productive but less efficient. We have to be both.”
The company had “too many people dedicated to supporting work and even working around work instead of contributing to opportunities with real impact.”
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Outlook changed to quarter loss
Spotify said the layoffs will result in charges of about 130-145 million euros in the fourth quarter, consisting mainly of layoff-related payments.
The company also updated its fourth-quarter outlook to an operating loss of 93-108 million euros, versus a profit of 37 million euros previously expected.
Spotify did not say when it expected to see profits from its job cuts, adding only that they would “create significant operating efficiencies going forward.”
Tomas Otterbeck, head of equity research at Stockholm-based investment bank Redeye, told Swedish news agency TT that he had expected the company to make cuts, “but that they were so big surprised me.”
He said he expects the layoffs to hit mainly the research and development division where the company has more than doubled its costs in recent years.
Spotify has invested heavily since its launch in 2006 to fuel growth with expansions into new markets and, in the coming years, exclusive content such as podcasts.
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He has invested over a billion dollars in podcasts alone.
In 2017, the company had about 3,000 staff members, more than tripling the number to about 9,800 by the end of 2022.
“Substantial action” is required.
The company has never made a full-year net profit and only occasionally turns a quarterly profit despite its success in the online music market.
In the third quarter, Spotify posted a 16% increase in paying subscribers, which make up the bulk of the company’s revenue, to 226 million, despite the price hikes.
It said it expects to surpass 600 million active users by the end of the year.
Monday’s layoff announcement was Spotify’s third this year.
In January, the company announced about 600 job cuts, followed by another 200 in the podcast division in June.
“We discussed smaller reductions in 2024 and 2025,” Ek wrote in his letter.
“However, given the gap between our financial goal status and our current operating costs, I decided that a substantial action to balance our costs was the best option to achieve our goals.”
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Spotify joins a number of tech companies cutting staff.
British telecoms group BT said in May it would cut up to 55,000 jobs by the end of the decade.
Tech giants Meta and Microsoft have revealed plans to cut their workforces by 10,000 this year.
In January, online retail giant Amazon announced it was cutting more than 18,000 jobs worldwide, and Google parent Alphabet announced cuts of around 12,000.
Source: AFP