Calling it a “crucial step” in a wider effort to be “relentlessly resourceful,” Spotify co-founder and CEO Daniel Ek announced on Monday a 17% reduction of the company’s global workforce. That amounts to roughly 1,500 jobs, given Spotify’s recent disclosure of having 9,241 full-time employees.
This is Spotify’s third round of layoffs in a year, following a 6% reduction in late January, affecting close to 600 staffers, and a targeted trimming of its podcast division in June that reduced its workforce by about 2%, representing around 200 jobs.
In a memo to staff, Ek cited a global operation that was still too big and that “considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives.”
In its third-quarter results, Spotify said revenues increased 11% to 3.4 billion euros ($3.6 billion), and operating income improved over 32 million euros ($34 million). At the time, it said “we believe this is an important inflection point for the business as we start to see the benefits of our focus on speed and efficiency.”
Ek acknowledged in his memo that a “reduction of this size will feel surprisingly large given the recent positive earnings report and our performance” and that, though smaller reductions over an extended period of time was considered, “I am convinced this is the right action for our company.”
“To understand this decision, I think it is important to assess Spotify with a clear, objective lens,” Ek said. “In 2020 and 2021, we took advantage of the opportunity presented by lower-cost capital and invested significantly in team expansion, content enhancement, marketing, and new verticals. These investments generally worked, contributing to Spotify’s increased output and the platform’s robust growth this past year. However, we now find ourselves in a very different environment. And despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.”
He added: “Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact. More people need to be focused on delivering for our key stakeholders – creators and consumers. In two words, we have to become relentlessly resourceful.”
Spotify will offer employees a baseline of five months of severance pay and other benefits, including payouts of all vacation pay, which it estimates will result in €130-145 million ($141-$157 million) in charges in the fourth fiscal quarter, according to a filing with the SEC. Ek said affected employees will be notified today, Dec. 4.
Ek said that the “Spotify of tomorrow must be defined by being relentlessly resourceful in the ways we operate, innovate, and tackle problems” and that as it looks ahead to its “next phase,” whatever that is, “being lean is not just an option but a necessity.”
The executive pressed that future “bold bets” — like its costly podcasting push — will still be made, however, with a more “focused” approach that keeps profitability on top of mind.
Ek said he will discuss the reductions further in a Wednesday “Unplugged” session.
“For those leaving, we’re a better company because of your dedication and hard work,” he said. “Thank you for sharing your talents with us. I hope you know that your contributions have impacted more than half a billion people and millions of artists, creators, and authors around the world in profound ways.”
In pre-market trading, Spotify shares are up 6% to over $191.
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