Spotify, the renowned music streaming giant, has announced a substantial reduction in its global workforce, affecting nearly 17% of its staff, which translates to approximately 1,600 employees worldwide.
This decision comes amidst a backdrop of increasing revenues yet operational inefficiencies.
Spotify's chief executive officer Daniel Ek attributed the layoffs to the current economic slowdown and the rising cost of capital.
He noted that the company expanded its workforce significantly during the early pandemic years, leveraging lower-cost capital. However, with changing economic conditions, Spotify finds itself compelled to curtail its operational expenses.
Despite the company's robust performance in terms of user growth and an 11% year-over-year revenue increase, it has struggled with profitability.
The streaming service reported a substantial operating loss of nearly US$502 million this year. Ek emphasized that while the staff had been productive in generating revenue, the company had not been as effective in allocating its financial resources.
The CEO acknowledged that the decision to reduce the workforce was a difficult one, especially considering the company's recent positive earnings report.
Ek also mentioned that smaller, staggered layoffs had been considered but ultimately, a more decisive action was deemed necessary to align the company's operational costs with its financial objectives.
Affected employees are to receive an average of five months' severance pay and healthcare coverage during this period.
This latest round of layoffs follows earlier staff reductions in 2023, including a 6% cut in January and another 200 employees in June. Concurrently, Spotify has also increased the prices of its ad-free subscription plans.
This trend of workforce reductions is not unique to Spotify.
In recent months, several other tech companies, including Amazon (NASDAQ:AMZN), Nextdoor, LinkedIn and Epic Games, have also announced significant layoffs, reflecting a broader industry recalibration following expansive hiring during the pandemic years.