Spotify trims over 1,500 jobs due to escalating costs

The music streaming service eliminates 17% of its workforce in the latest wave of layoffs affecting major tech companies

Spotify is reducing its workforce by more than 1,500 employees, citing a sluggish economy and increased borrowing costs in the latest series of layoffs affecting major tech companies. Daniel Ek, the billionaire founder and CEO of Spotify, announced that the company has opted to cut 17% of its workforce, marking the third and most significant round of layoffs in 2023. The decision comes amid pressure from an activist investor. Ek informed affected employees that they would receive a calendar invitation for a one-on-one conversation with HR within the next two hours, as detailed in a message published on Spotify’s website on Monday.

Major technology companies, including Meta, Microsoft, Amazon, and Alphabet, have undergone significant retrenchment and large-scale redundancies in 2023. This trend has emerged in response to the rise in interest rates, with investors emphasizing these companies’ capacity to reduce costs to safeguard profits.

Stockholm-based Spotify, a dominant force in global music streaming and one of the few European companies competing with US counterparts, has scaled back its heavy investment in podcasting amid the slowing momentum of the global economy. This pullback comes after previous substantial podcast investments, such as backing a podcast by Prince Harry and the Duchess of Sussex, which concluded in apparent disagreement this year.

While maintaining valuable podcasting partnerships, including a controversial deal with Joe Rogan, Spotify has shifted focus. In October, the company announced plans to provide customers with up to 15 hours of audiobooks each month, creating an additional revenue stream and entering direct competition with Audible, owned by Amazon.

Daniel Ek mentioned that Spotify had utilized low-cost borrowing in 2020 and 2021, benefitting from significant interest rate cuts by central bankers during the COVID-19 pandemic lockdowns. However, Ek noted that the current economic landscape is substantially different. Despite the company’s efforts to trim costs in the past year, he expressed that the existing cost structure remains too large for their goals.

Valued at over $35 billion on the New York Stock Exchange, Spotify has attracted the attention of ValueAct, an activist investor based in San Francisco. ValueAct has acquired a $220 million stake in the music streaming company.

Mason Morfit, CEO of ValueAct, remarked that Spotify’s costs had “exploded” and that the company was “built for the bubble.” While substantial spending has assisted Spotify in continuously attracting new customers, the company implemented a price hike in July to leverage its growing subscriber base. This increase contributed to Spotify’s achievement of a profit of €65 million in the third quarter of 2023, with revenue reaching €3.4 billion during that period.

Spotify’s stock price surged by 7% in pre-market trading, surpassing $180. While the company’s market value has more than doubled throughout the year, it remains below its 2022 starting level and the peak of over $360 in February 2021. The pandemic-induced rate cuts had propelled tech companies during that period. As of the end of the third quarter of 2023, Spotify reported having 9,400 employees. Having previously reduced employee numbers by 6% in January and an additional 2% in June, the company is implementing its third and most significant round of redundancies, cutting 17% of its workforce. Affected employees will receive an average of five months of severance pay, along with unused holiday pay. Daniel Ek, Spotify’s CEO, emphasized that embracing this leaner structure will enable strategic investments of profits back into the business. Ek acknowledged the challenges of the day but underscored its significance for the company.