The world number one audio platform Spotify announced on Monday a reduction in its workforce by “around 17%”, or around 1,500 people, in order to reduce its costs in a context of slow economic growth.
This is the third wave of workforce reductions since the Swedish group had already announced 600 job cuts in January and 200 in June in its podcasts division.
These job cuts are part of the wave of layoffs that has hit global “tech” since the beginning of 2023, in particular American giants such as Meta, Alphabet, Amazon.
“I am aware that for many, a reduction of this magnitude may seem surprising given the recent positive profit report and our performance,” wrote general manager Daniel Ek in a letter to employees seen by AFP.
In the third quarter, the group posted a rare net profit of 65 million euros (around CA$95 million), compared to a loss of 166 million (around CA$243 million) a year earlier, against a backdrop of an increase in 26% of the number of its active users at 574 million. It targets 600 million active users by the end of the year.
These layoffs should make it possible to “align Spotify with our future objectives and (to) ensure that we are well sized for the challenges to come,” he explained in this letter.
According to Mr. Ek, in 2020 and 2021, the company “took advantage of the opportunity offered by lower cost capital and invested significantly in team expansion, content improvement, marketing and new vertical markets.
“However, we find ourselves in a very different environment today and despite our efforts to reduce costs last year, our cost structure to achieve our objectives is still too high,” he added, highlighting before “economic growth which has slowed considerably”.
In 2022 and 2023, Spotify, which is listed on the New York Stock Exchange, was “more productive, but less efficient. We must be both at the same time.”
Heavy investments
Spotify has continued to invest since its launch in 2006 to fuel its growth by expanding into new markets and then offering exclusive content, such as podcasts, in which it has invested more than a billion dollars.
The company “has too many people in support functions […] rather than contributing to opportunities with real impact,” according to Ek.
In 2017, the company had around 3,000 employees, a number that has more than tripled to around 9,800 people by the end of 2022.
Since its creation, the platform has never posted a net profit for the entire year and only occasionally makes quarterly profits, despite its success in the online music market.
In the third quarter, Spotify increased its paid subscribers, which account for the bulk of its revenue, by 16% to 226 million subscribers.
As a result of these job cuts, Spotify now forecasts an operating loss of between 93 and 108 million euros (or between 136 and 158 million CA$) in the last quarter, compared to a profit of 37 million (54 million CA$ ) initially planned.
The job cuts were predictable but “the extent of them surprised me,” said Tomas Otterbeck, head of equity research at Nordic broker Redeye at Swedish agency TT. According to him, research and development will be most affected by these reductions.
Ek explains that he has considered “smaller workforce reductions, over 2024 and 2025”.
“But given the gap between our financial goals and our operational costs, I decided that substantial action to right-size our costs was the best option to achieve our goals.”
In the United States, tech giants Meta and Microsoft have announced plans to cut at least 10,000 people each.
In January, online commerce giant Amazon announced that it would cut more than 18,000 jobs and Google’s parent company, Alphabet, around 12,000 jobs.