Music streaming giant Spotify (SPOT.N) said on Monday that it will lay off around 1,500 employees, or 17% of its headcount, to bring down costs after letting 600 of its staff go in January and 200 more in June. CEO Daniel Ek told workers in a letter that the company had taken on too many people over the years 2020 and 2021 when capital was cheap, but now it needs to get its spending under control.
Despite its massive success in the online music market, the Swedish company has never posted a full-year profit and only occasionally quarterly profits. However, investors have been pushing the company to focus more on profitability as its revenues continue to grow, and it is now taking steps to do so.
“I have concluded that we need to take substantial action to rightsize our cost structure,” Ek wrote to workers on the company’s website. He said affected employees would receive a calendar invite from HR within two hours to have a one-on-one conversation. The company added that they will be paid their full severance pay and be eligible for outplacement services.
Several firms have already started reducing their workforce again in a sign of the tightening in tech companies’ hiring practices after a boom during COVID-19 lockdowns. On Friday, Michigan-based electric car battery maker Next Energy cut several jobs after posting a loss.
After a round of job cuts by tech companies at the start of the year, some have begun reducing their workforce again, with announcements coming from Amazon to Microsoft-owned LinkedIn. Tech industry insiders expect the cuts to continue in 2024 as the sector struggles with a slowing economy and higher capital costs.
Investors are worried that rising interest rates will hit revenue growth and push up costs for many firms. Those concerns in the wake of a weaker-than-expected earnings season have battered tech stocks.
According to filings, the latest cuts will significantly impact the music company’s payroll, which is estimated at 9,000 in October. That will make it difficult for Spotify to compete with rivals, such as Apple’s (AAPL.O) Music app, which has more users than Spotify.
The company’s losses are driven by hefty investments in areas such as podcasting, which has not yet turned a profit, and costly licensing fees for songs from record labels. However, it has invested over a billion dollars to build the business and is now making its products available in most countries. Spotify has 601 million monthly active listeners, up from 345 million at the end of 2020. It has also spent heavily signing celebrities up and expanding its global presence. It is now aiming for a billion users by 2030. It has increased its user base by 16% this year because of price hikes and growth in paying subscribers. The recent surge in the popularity of podcasts has also boosted it.
