Spotify, the music streaming giant, announced on Monday that it will be laying off around 17% of its workforce as part of cost-cutting measures due to the slower economic growth. The company had reported a rare quarterly operating profit of 32 million euros in October, compared to a loss of 228 million euros during the same period the previous year, thanks to a 26% increase in active users in the third quarter.
In a letter to employees seen by AFP, Spotify CEO Daniel Ek acknowledged the surprise factor of the significant reduction in staff size despite the positive earnings report and company performance. Ek explained that in 2020 and 2021, Spotify had expanded its team, enhanced content, and invested in marketing and new verticals, taking advantage of lower-cost capital. However, the current economic environment has prompted the need for further cost reductions as the company’s cost structure remains oversized.
Since its launch, Spotify has heavily invested in fueling growth by expanding into new markets and offering exclusive content such as podcasts. The company has invested over one billion dollars solely on podcasts. In 2017, Spotify had around 3,000 staff members, but by the end of 2022, that number had more than tripled to approximately 9,800.
Despite its success in the online music market, Spotify has never posted a full-year net profit and has only occasionally achieved quarterly profits. The decision to downsize is part of the company’s efforts to align its cost structure with its current financial situation.
Spotify’s move to reduce its workforce comes amidst the challenges faced by many companies worldwide due to the slower economic growth resulting from the ongoing pandemic. The impact of these layoffs on Spotify’s operations and future growth remains to be seen.
