Spotify shares rose over 7% following the company’s announcement that it is laying off 17% of its workforce, amounting to approximately 1,500 jobs. The move is aimed at reducing costs and adjusting to a slowdown in growth. Spotify CEO Daniel Ek stated in an email to staff that the company had taken on too many employees in 2020 and 2021 when capital was cheap, and now needs to rightsize its costs.
Despite reporting a profit of 65 million euros ($70.7 million) for the third quarter, Spotify is taking this dramatic step to align itself with future goals. The company has been expanding into podcasts and audiobooks and raised subscription plan prices earlier this year. This round of layoffs follows previous cuts, with 6% of the workforce (about 600 employees) laid off at the beginning of the year, and another 2% (around 200 roles) in June.
Analysts believe the latest layoffs are a sign of Spotify’s continued focus on achieving profitability targets rather than a reaction to economic headwinds. The headcount reductions could result in nearly a 2% reduction in operating expenses in 2024, according to Wells Fargo analysts. Spotify shares have more than doubled this year. In an internal memo, Ek acknowledged the impact on departing employees and emphasized the need for Spotify to become both productive and efficient.
The company aims to be “relentlessly resourceful” in its operations and innovation, embracing a leaner structure to invest profits more strategically. Ek stated that this is not a step back but a strategic reorientation for Spotify’s continued profitability and ability to innovate.