Spotify Technology SA, the popular music streaming company, is making its steepest job cuts this year, reducing its workforce by 17% as part of an aggressive effort to drive profitability and cut costs.
The company announced that approximately 1,500 employees will be affected by the layoffs, with notifications being sent out on Monday.
Following the announcement, Spotify’s shares surged by as much as 11% to $201.42. Despite reporting a rare profit last quarter and being on track to add over 100 million users in 2023, Chief Executive Officer Daniel Ek stated in a note to employees that the company is still spending too much.
He cited an economic slowdown and the rising cost of capital as reasons for the need to reduce costs.
In the statement, Ek emphasized the importance of focusing on delivering for key stakeholders, including creators and consumers. He mentioned that there were too many people dedicated to supporting work and performing tasks that didn’t contribute to impactful opportunities.
Spotify projected operating losses for the fourth fiscal quarter in the range of €93 million ($101 million) to €108 million.
These losses are attributed to charges of €130 million to €145 million from severance payments and related real estate changes. Previously, the company had projected an operating income of €37 million.
Ek explained that the decision to make substantial job cuts was made after considering smaller cuts over the next two years. The company’s workforce has nearly doubled since 2020, with the number of employees increasing from 5,779 in the first quarter of that year to over 10,000 by the end of 2022.
One possible reason for the cuts is Spotify’s expansion away from the music business. The company has invested heavily in podcasting, spending over a billion dollars on studios, ad technology, and content creation platforms.
However, it has scaled back its investment in audio series in recent years. In June, Spotify laid off 2% of its staff, primarily at its podcast studios, and reduced its original programming slate. This year alone, more than 2,000 employees have been laid off.
With these latest job cuts, Spotify aims to establish a leaner structure that allows for more strategic reinvestment. Ek plans to address the cuts in a meeting with employees on Wednesday, acknowledging the economic challenges and the increased cost of capital.