1500 jobs slashed at tech giant: ‘Not an exception’

Music streaming platform Spotify has revealed plans to cut approximately 1500 jobs — or about 17 per cent of its workforce.

This surprising announcement follows the company’s rare quarterly net profit of $100 million in October, a significant turnaround from a loss of $270 million for the same period last year.

Despite experiencing a 26 per cent growth in active users, in the third quarter, Spotify said its decision to downsize reflects a challenging economic environment.

The company’s CEO, Daniel Ek, addressed employees in a letter, acknowledging the unexpected nature of the reduction given the recent positive earnings report.

“While we’ve made worthy strides, as I’ve shared many times, we still have work to do,” said Mr Ek.

“Economic growth has slowed dramatically, and capital has become more expensive. Spotify is not an exception to these realities.”

Mr Ek explained that during 2020 and 2021, Spotify capitalised on lower-cost capital to invest significantly in team expansion, content enhancement, marketing and new verticals.

“I recognise this will impact a number of individuals who have made valuable contributions. To be blunt, many smart, talented and hardworking people will be departing us.”

However, the economic landscape has shifted dramatically, with slower growth and more expensive capital.

Mr Ek emphasised the need for Spotify to be both productive and efficient, stating that the current cost structure is still too large despite efforts to reduce costs in the past year.

“We debated making smaller reductions throughout 2024 and 2025,” he said.

The lay-offs are expected to result in charges of approximately $200 million in the fourth quarter, primarily consisting of severance-related payments.

Spotify updated its fourth-quarter outlook to an operating loss in the range of $150 to $175 million, a significant shift from the previously expected profit of $60 million.

“While I am convinced this is the right action for our company, I also understand it will be incredibly painful for our team.”

The company did not provide a specific timeline for the gains expected from the job cuts but mentioned they would “generate meaningful operating efficiencies going forward”.

Tomas Otterbeck, Head of Equity Research at Redeye, a Stockholm-based investment bank, expressed his surprise at the magnitude of Spotify’s lay-offs, stating, “I had been expecting the company to make cuts, but that they were this big surprised me.”

Otterbeck anticipates the lay-offs will predominantly impact the research and development department, where the company has more than doubled its costs in recent years.

Since its launch in 2006, Spotify has made substantial investments to fuel growth, expanding into new markets and venturing into exclusive content, including podcasts. Notably, the company invested over $1.5 billion in podcasts alone.

Despite its success in the online music market, Spotify has never posted a full-year net profit and only occasionally achieved quarterly profits.

In the third quarter, Spotify reported a 16 per cent increase in paying subscribers to reach 226 million, despite price hikes.

The company projects exceeding 600 million active users by the end of the year. This marks Spotify’s third lay-off announcement in 2023, following cuts of around 600 jobs in January and an additional 200 in the podcast division in June.

Spotify’s move aligns with a broader trend in the tech industry, with companies like BT, Meta, Microsoft, Amazon, and Alphabet also announcing significant workforce reductions.

In his letter to employees, Mr Ek explained the decision to implement substantial lay-offs, stating: “Considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to right-size our costs was the best option to accomplish our objectives.”

—with wires

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