Music streaming giant Spotify, is gearing up to to layoff approximately 1,500 employees, constituting 17% of its workforce, following earlier layoffs of 600 staff members in January and an additional 200 in June.
Affected employees will receive approximately five months of severance pay, vacation pay, and healthcare coverage for the severance period. Despite the workforce reduction, Spotify’s U.S.-listed shares surged by about 11%, reaching levels near their two-year high at $200.46 in early trading.
Reuters reports that Spotify’s CEO, Daniel Ek, addressed a letter to the to employees, explaining that the company expanded its workforce in 2020 and 2021 due to the then lower cost of capital. While the company’s output has increased, Ek noted that much of it was linked to having more resources.
Ek explained that alternative options were considered, such as making smaller reductions over the next few years, but he concluded that a large action was the best choice to align operational costs with the company’s financial goals.
The music streaming company is not the first to layoff a number of its employees this year, Amazon, and LinkedIn have also announced their decision to take the same route.
The layoffs are expected to result in Spotify incurring charges ranging from about 130 million euros to 145 million euros in the fourth quarter. The majority of the cash component of these charges will be recorded in the first and second fiscal quarters of 2024.
Consequently, Spotify has revised its fourth-quarter operating forecast, now expecting an operating loss between 93 million euros and 108 million euros, in contrast to its previous forecast of a 37-million-euro operating profit.
Known for its significant investment in the podcasting business, including partnerships with celebrities like Kim Kardashian, Prince Harry, and Meghan Markle, Spotify aims to reach a billion users by 2030. Despite achieving profitability in the third quarter, with increased subscribers and price hikes in its streaming services, the company has stressed the need for increased efficiency.
The company has invested over a billion dollars to reach its one-billion-subscriber goal. Speaking more on the work plan for the coming years, Ek stated, “by most metrics, we were more productive but less efficient. We need to be both.”
Employees affected by the layoffs will be informed starting Monday.
