Spotify Cuts 1500 Jobs, Goes Back To Start-Up Mentality
In an effort to reduce costs and increase profitability, roughly one fifth of the 9,000 Spotify workers worldwide are being made redundant after warning that economic growth had slowed quickly and significantly.
Spotify Chief executive Daniel Ek said of the decision: “I recognise this will impact a number of individuals who have made valuable contributions.”
“To be blunt, many smart, talented and hard-working people will be departing us.”
After the announcement was made, Spotify shares jumped 8%.
Spotify, though used widely, has continued to struggle to make break even and turn a profit.
After Activist investor ValueAct purchased shares in Spotify, concerns were redlined that the company’s expenses had “exploded”.
In total, Spotify has now fired roughly 2,000 employees in 2023, but user growth remains unaffected and in fact, is the highest it has ever been.
“The knock on Spotify from investors for so long was: amazing service, amazing platform, not a great business”, asserted Rich Greenfield, analyst at LightShed.
“This is demonstrating to investors that this can be a great business. People lost faith in that over the last few years”.
The massive cuts seem to be working as the company announced it had its first quarterly profit in over a year, according to their October report.
Instead of further restructuring smaller from 2024-2025, Spotify said they decided on more restructuring now, with staff who lost their jobs to be notified next week.
The music streamer had determined a target of achieving long-term gross profit margins of between 30-35%, whereas gross margins stood at 26% in the last quarter.
“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,” Ek said.
According to Bank of America analysts, Spotify had achieved an “inflection point” for earnings, stating that “management’s recent commentary and actions on expenses should drive continued improvement”.
Now Spotify has to manage obstacles to higher profits like an increased cost of capital.
“As we’ve grown, we’ve moved too far away from this core principle of resourcefulness” Ek said.
Part of Spotify retooling is cancelling several podcast shows, including several true crime series because of past expenditures on exclusive podcasts from celebrities such as Michelle and Barack Obama, and the Duke and Duchess of Sussex.
Ek asserted that investments “generally worked, contributing to Spotify’s increased output and the platform’s robust growth” but did say that its cost formation had become too large.
“By most metrics, we were more productive but less efficient,” he said. “We need to be both . . . In two words, we have to become relentlessly resourceful.”
According to Ek, his leadership strategy includes returning Spotify to having a start-up mentality. Now the focus will be on optimising limited resources to achieve “hard-won” success.