Quiver Quantitative - Spotify (SPOT), the renowned music streaming giant, announced its third significant workforce reduction this year, planning to lay off approximately 1,500 employees, equating to 17% of its total workforce. This decision follows previous layoffs of 600 employees in January and 200 more in June. The news triggered a notable surge in Spotify's U.S.-listed shares, which jumped about 11%, approaching a two-year high.
The move by Spotify reflects a broader trend in the tech industry, where companies like Amazon (NASDAQ:AMZN) and Microsoft-owned LinkedIn have also initiated workforce reductions. Spotify CEO Daniel Ek attributed the company's earlier hiring surge in 2020 and 2021 to lower capital costs. Although this expansion increased output, Ek acknowledged that much of it was linked to the availability of more resources rather than increased efficiency. The company anticipates incurring charges of between 130 million to 145 million euros in the fourth quarter due to the layoffs, with the majority of these costs expected in the first half of 2024. As a result, Spotify revised its fourth-quarter operating loss forecast to between 93 million and 108 million euros, a significant shift from its previous expectation of a 37-million-euro profit.
Despite this restructuring, Spotify has made substantial investments in its podcast business, exceeding a billion dollars, and has signed high-profile figures like Kim Kardashian, Prince Harry, and Meghan Markle. This expansion aims to grow its user base to a billion by 2030. The third quarter saw the company return to profitability, bolstered by increased streaming service prices and subscriber growth across all regions. However, Ek emphasized the need for the company to enhance efficiency alongside productivity.
The layoffs, which will begin immediately, come despite Spotify's recent positive earnings report and overall performance. Affected employees will receive about five months of severance pay, vacation compensation, and healthcare coverage for the severance period. Ek remarked that while smaller reductions were considered for 2024 and 2025, a substantial action was necessary to align operational costs with financial goals more effectively.
This article was originally published on Quiver Quantitative