Spotify is cutting around 20% of its staff because the economy has slowed down, and they need to save money in order to make consistent profits.
CEO Daniel Ek announced on Monday that Spotify will be reducing its global workforce by approximately 17%. That’s about 1,500 workers. More than 9,000 people are employed by Spotify worldwide.
Ek stated, “I understand this will have an impact on a number of individuals who made valuable contributions.” We will lose many talented and hardworking individuals.
Spotify shares rose 8 percent in New York morning trading.
Spotify, despite its popularity, has struggled throughout its history to make a profit consistently — a source for increasing frustration among investors. ValueAct, an activist investor, acquired a stake of Spotify in February. It expressed concern that the company’s expenses had “exploded”.
Spotify has fired over 2,000 employees, which is a quarter of its workforce, along with previous rounds of cuts. However, its number of users has greatly increased.
Rich Greenfield is an analyst at LightShed. He said: “Investors have been knocking Spotify for so long, saying that it’s a platform with amazing features, but not a business. This is showing investors that it can be a successful business. Over the past few years, people lost trust in this business.
The announcement on Monday comes less than a month after Spotify began to see the benefits of its cost-cutting efforts. The New York-listed firm credited price increases and cost reductions with helping it to report its first quarter profit in more than a decade.
Ek admitted that the magnitude of the job reductions would come as a shock, given the recent increase in earnings. He explained that the group debated whether to make smaller cuts in 2020 and 2025 but decided on a more drastic restructuring. On Monday, employees who are at risk of losing a job will be informed.
Spotify’s goal is to reach long-term gross margins between 30 and 35%. In the latest quarter, gross margins were 26 percent.
Ek stated on Monday that “considering the gap between our financial goals and our current operating costs, I determined that a substantial measure to rightsize our cost was the best way to achieve our objectives.”
Spotify’s financial performance had been boosted by an earlier round of cost-cutting after it unwinded an expensive podcast bet, which included the axing of about 600 jobs in 2023 at the beginning and another 200 during the summer.
Bank of US analysts said in October that Spotify has reached a “turning point” in regard to profits. They have claimed that the recent remarks and actions made by management regarding expenses will further enhance improvements.
Ek stated that Spotify is facing new realities including a higher capital cost and the need to be more efficient.
Ek said that in the early days of Spotify, “our creativity and innovation were what made us stand out.” As we have grown, we have moved too far from this core principle.
In the last year, it cancelled several of its original shows, including true-crime series. The group has spent a lot of money on exclusive podcasts by celebrities like Michelle and Barack Obama. A deal between the Duke & Duchess of Sussex cost $25mn and included 12 episodes.
Ek admitted that the company utilized cheaper capital to make substantial investments in its team, content, marketing, and new business sectors.
He said that the investments were generally successful and helped Spotify grow. However, he admitted that the cost of running its platform had become too high.
He said that “by most metrics we were more efficient but less productive.” “We must be both.” . . Be resourceful.
Ek proposed a plan to bring Spotify back to its initial mindset, where limited resources were used effectively and innovatively to achieve success through hard work.