Spotify Announces Major Downsizing with 1500 Job Cuts
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In a surprising announcement, Spotify revealed this morning that about 17% of its global workforce is being made redundant. This dramatic move will impact around 1500 employees and is being framed by CEO Daniel Ek as part of an effort to build “a stronger, more efficient Spotify for the future.”
CEO Ek recognized the impact this will have on individuals who have made valuable contributions, saying “To be blunt, many smart, talented and hard-working people will be departing us.” He attributes these cutbacks to the slowed economic growth and increased cost of capital, which have created significant financial challenges for the company.
These challenges are further exacerbated by Spotify’s history of utilizing surging equity markets, including raising debt financing at 0% interest in 2021. However, with the company’s stock being downgraded by Citi last week, the possibility of securing debt at the same favorable terms is highly unlikely. This will likely result in Spotify having to pay a premium over current interest rates for any future debt financing.
While Spotify reported a small profit in its last quarterly earnings report, it also revealed significant total losses over the previous three years. Unless the company can find a clear path to profitability, including through cost-cutting measures, there will be a further need for debt financing, which will come at a high cost.
CEO Ek acknowledges that the company took advantage of lower cost capital in 2020 and 2021 to invest in significant team expansion, content enhancement, marketing, and new verticals. However, this resulted in a less efficient Spotify, and the company now aims to find a balance between being resourceful and efficient.
This marks the third round of redundancies at Spotify in 2023, following a 6% workforce cut in January and a restructuring of the podcasting business in June. In 2019, Spotify heavily expanded into podcasting and announced plans to delve into audiobooks, with the goal of transforming into more than just a music company. These efforts were costly, particularly the reported $200 million spent on an exclusivity deal with Joe Rogan’s podcast, and have raised concerns about the company’s long-term profitability strategy.
The pressure on Spotify has been intensified by investor concerns about the company’s ability to maintain growth rates and increase average revenue per user. Analysts at Citi cited these concerns when they downgraded Spotify stock from ‘buy’ to ‘neutral’ last week. Moreover, CEO Daniel Ek’s stock sales earlier this year could further impact investor confidence in the company.
In addition to investor pressure, Spotify faces significant competition from tech giants like Apple and Amazon, as well as TikTok’s expansion into music streaming. While it remains a market leader, Spotify also receives a great deal of public criticism within the music community, calling attention to its business practices.
Ek’s internal memo explains the process for making these significant redundancies and outlines the support the company will provide to affected employees. He also highlights that these changes will have an impact on the employees who remain, and he emphasizes his commitment to achieving Spotify’s mission.
Overall, the company is undergoing challenging times, but Ek expresses confidence in their ability to emerge even stronger in the future.
The Future of Spotify: Building a Stronger and More Efficient Company in 2024
Earlier today, CEO Daniel Ek shared a note with all Spotify employees, discussing the company’s recent organizational changes and the strategy for the future. Here are the key points from his message.