Spotify said on Monday it would cut nearly a fifth of its workforce, its third round of layoffs so far this year, as it has struggled to become consistently profitable after spending aggressively to expand beyond music streaming into areas such as podcasting.
Spotify CEO Daniel Ek wrote in a note to employees posted on the company’s website that the platform now needed to “right-size” to account for a “very different environment.” Stockholm-based Spotify will lay off about 1,500 people, or 17 percent of its staff.
“Economic growth has slowed dramatically and capital has become more expensive,” Mr. Ek said. “Despite our efforts to reduce costs last year, our cost structure to get to where we need to be is still too large.”
Spotify’s cuts come as the tech industry faces the end of a decade of rock-bottom interest rates that fueled its growth, prompting industry giants like Amazon, Meta and Salesforce to cut costs and cut jobs. Monday’s measures, Ek said, were aimed at “preparing us for our next phase, where being efficient is not just an option but a necessity.”
Despite being the largest music streaming platform, Spotify has long struggled to be profitable due to the terms of the licensing deals it has with record labels and music publishers. The company has ventured into new areas such as podcasting, including purchasing podcast studios Gimlet for $230 million in 2019 and The Ringer for about $200 million in 2020. It struck costly deals with well-known figures such as former President Barack Obama and Michelle Obama. as well as Prince Harry and his wife, Meghan. More recently, the company has expanded into audiobooks.
The changes have helped Spotify attract listeners and subscribers, but they have not been a major financial breakthrough. In the first nine months of 2023, Spotify lost 462 million dollarsmore than double the loss in the same period in 2022.
But the company turned a small profit last quarter, its first in more than a year, in what Paul Vogel, its chief financial officer, at the time called “a major turning point for the business.”
Spotify had 226 million paying subscribers at the end of September and is on track to add 30 million for the full year, 50 percent more than it expected by early 2023. The company recently raised its subscription prices by more from 50 countries.
Spotify also has more than 360 million monthly active users whose accounts are supported by advertising. This segment has grown faster than paid subscriptions, but generates less revenue with a lower profit margin for the company.
The job cuts are the largest Spotify has announced this year. In June, Spotify cut about 200 jobs, including many related to podcasting. Another 600 employees were laid off in January.
As part of its severance package for job cuts announced Monday, Spotify said the average employee would receive about five months of salary.
There is little concern among investors that the company is “cutting muscle” with job reductions, said Benjamin Black, an analyst at Deutsche Bank.
The round of layoffs was not a surprise, but it was earlier and larger than expected, he said. The move was welcomed by investors, who are eager to see the company turn a profit more consistently.
Shares of Spotify, which trade on the New York Stock Exchange, rose more than 7 percent on Monday, extending the gains the company has made this year, partly reversing a long decline from a high in early 2021. The company’s stock price has more than doubled. this year.
“In the minds of investors, this represents a turning point in terms of how serious the company is” about hitting its earnings targets, Mr. Black said. “This shows that they are very, very serious.”
J. Eduardo Moreno contributed with reports.