Volkswacht Bodensee - Spotify cuts around 1,500 jobs as growth slows

The announcement comes on the heels of a rare quarterly net profit of 65 million euros in October, compared to a loss of 166 million for the same period a year earlier, and following 26 percent growth in active users for the third quarter to 574 million.

Around 1,500 people will leave the company, Spotify said.

It was the latest in a series of layoffs announced in the tech industry which is cutting tens of thousands of jobs following a boom during Covid pandemic lockdowns.

"I realise that for many, a reduction of this size will feel surprisingly large given the recent positive earnings report and our performance," chief executive Daniel Ek wrote in a letter to employees, which was seen by AFP.

He said that in 2020 and 2021, the Swedish company "took advantage of the opportunity presented by lower-cost capital and invested significantly in team expansion, content enhancement, marketing and new verticals."

Ek said the company now finds itself in a very different environment, noting that "economic growth has slowed dramatically and capital has become more expensive."

"Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big," he added.

Ek said that in 2022 and 2023, Spotify, which is listed on the New York Stock Exchange, was "more productive but less efficient. We need to be both."

The company had "too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact."

- Outlook changed to Q4 loss -

Spotify said the layoffs would lead to charges of around 130-145 million euros in the fourth quarter, primarily consisting of severance-related payments.

The company also updated its fourth quarter outlook to an operating loss in the range of 93-108 million euros, compared to a previously expected profit of 37 million euros.

Spotify did not specify when it expected to see the gains of its job cuts, adding only that they would "generate meaningful operating efficiencies going forward".

Tomas Otterbeck, head of equity research at Stockholm-based investment bank Redeye, told Swedish news agency TT he had been expecting the company to make cuts, "but that they were this big surprised me".

He said he expected the layoffs to mainly hit the research and development department where the company has more than doubled its costs in recent years.

Spotify has invested heavily since its 2006 launch to fuel growth with expansions into new markets and, in later years, exclusive content such as podcasts.

It has invested over one billion dollars into podcasts alone.

In 2017, the company had around 3,000 staff members, more than tripling the figure to around 9,800 at the end of 2022.

- 'Substantial action' needed -

The company has never posted a full-year net profit and only occasionally quarterly profits despite its success in the online music market.

In the third quarter, Spotify registered a 16 percent rise in paying subscribers, which make up the bulk of the company's revenue, to 226 million, despite price hikes.

It said it expected to exceed 600 million active users by the end of the year.

Monday's lay-off announcement was Spotify's third this year.

In January, the company announced around 600 job cuts, followed by another 200 in the podcast division in June.

"We debated making smaller reductions throughout 2024 and 2025," Ek wrote in his letter.

"Yet, considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives."

Spotify joins a number of tech firms reducing staff.

British telecom group BT said in May that it will axe up to 55,000 jobs by the end of the decade.

Tech giants Meta and Microsoft have revealed plans to reduce their workforce by as many as 10,000 employees this year.

In January, online retail giant Amazon announced it was cutting over 18,000 jobs worldwide and Google parent company Alphabet announced cuts of around 12,000 people.

H.Weber--VB