Spotify
Credits: Wikimedia Commons

Spotify, the global music streaming behemoth, has announced a substantial reduction in its workforce – 17%, which targets around 1,500 employees. This decision comes as the third round of layoffs in 2023, signaling a strategic response to economic challenges, and follows earlier staff cuts of 600 in January and an additional 200 in June.

In a note sent to all employees, Spotify CEO Daniel Ek revealed that the company was reducing its headcount in order to “align Spotify with our future goals and ensure we are right-sized for the challenges ahead.” Ek went on to add that the music-streaming behemoth had originally considered the option of gradual reductions throughout 2024 and 2025, but ultimately opted for a more substantial workforce adjustment.

“Over the last two years, we’ve put significant emphasis on building Spotify into a truly great and sustainable business – one designed to achieve our goal of being the world’s leading audio company and one that will consistently drive profitability and growth into the future. While we’ve made worthy strides, as I’ve shared many times, we still have work to do. Economic growth has slowed dramatically and capital has become more expensive. Spotify is not an exception to these realities,” Ek wrote in the note.

To provide some context to Ek’s statement, Spotify’s workforce expansion in 2020 and 2021 was marked by an ambitious hiring spree, driven by the favourable cost of capital during that period. The company strategically invested over a billion dollars to develop its podcast business, securing partnerships with high-profile celebrities like Kim Kardashian, Prince Harry, and Meghan Markle. These moves were pivotal in the company’s quest to reach a billion users by 2030. The music-streaming giant currently has a total of 601 million users.

Despite achieving a rare quarterly net profit in October, Spotify continues to face economic headwinds that have prompted Ek to take proactive measures. Spotify anticipates incurring charges ranging from approximately €130 million to €145 million euros in the fourth quarter due to the layoffs. This substantial financial adjustment prompts a revision of the fourth-quarter operating forecast, shifting from the previous projection of an operating profit of €37 million to an expected operating loss between €93 million-€108 million euros.

The impact of these layoffs will be significant. Those affected will receive about five months of severance pay, inclusive of vacation pay, along with continued healthcare coverage during the severance period. To add to this, immigration and career support services will be provided to the impacted employees, who will be eligible for outplacement services for two months as well.