On Monday, the value of Spotify shares jumped more than 7% after it said it would lay off 17% of its workforce. This amounts to almost 1.5K jobs. Daniel Ek, the CEO of the music streaming company, shared a note to employees. The note is available on Spotify’s website.
The company is making a dramatic move to reduce its costs and adjust to its slowdown in growth. Ek is of the opinion that there was a slew of investments in 2020 and 2021. Hence, the company needs to take “substantial action to rightsize” its costs to face the new reality of the economy.
Ek said that the company hired too many employees in 2020 and 2021 because capital was cheap. As a result, tech companies were in a better position to invest more in expanding their teams.
However, on the other hand, Spotify reported a $70.7 million profit in the third quarter of 2023. The company said that these profits are due to the fact that it spent less on personnel and marketing.
In the internal memo, Ek stated –
“Over the last two years, we’ve put significant emphasis on building Spotify into a truly great and sustainable business – one designed to achieve our goal of being the world’s leading audio company and one that will consistently drive profitability and growth into the future. […] Economic growth has slowed dramatically, and capital has become more expensive. Spotify is not an exception to these realities.”
The move comes despite Spotify making good profits in the third quarter of this year. Earlier this year, Spotify raised the prices of its subscription plans. Furthermore, they were expanding their services to podcasts and audiobooks.