Spotify CEO Daniel Ek announced today that the company will lay off 17% of its employees, equivalent to more than 1,000 people. Spotify needs to cut costs and work to close the gap between current operating costs and its financial target state.
According to Ek, Spotify absorbed too many employees in 2020 and 2021. Although this led to increased output and company growth, it also reduced Spotify's efficiency and increased operating costs. Spotify has too many people "committed to supporting jobs" and "working around jobs" rather than "contributing to opportunities with real impact."
The announcement is as follows:
Over the past two years, we've been laser-focused on building Spotify into a truly great and sustainable business - one designed to deliver on our goal of becoming the world's leading audio company, and one that will continue to drive profitability and growth well into the future. As I have shared many times, while we have made progress that deserves recognition, we still have much work to do. Economic growth slowed significantly and capital became more expensive. Spotify is no exception.
So I made a decision that would mean a major shift for our company. To align Spotify with our future goals and ensure we have the right scale to meet the challenges ahead, I have made the difficult decision to reduce our headcount across the company by approximately 17%.
Spotify employees affected by the layoffs will be notified by Tuesday, December 5. Severance pay will be based on tenure and local notice period requirements, with employees receiving an average of five months of severance pay.
Looking ahead, Ek said Spotify must be "relentless in its use of resources" in the way it operates because "refinement is not just a choice, it's a necessity." The layoffs will allow the company to "build a stronger Spotify" in 2024.
In the third quarter of 2023, Spotify's revenue was $3.6 billion, up from $3.2 billion in the same period last year. Spotify also added 23 million monthly active users and 6 million paid subscribers to post its first profitable quarter in 2023. But the profit margin is only 1%.
Spotify, Apple Music's main competitor, has long protested the fees Apple charges through its App Store. Spotify Chief Executive Daniel Ek has been urging British lawmakers this year to pass a bill to regulate competition in digital markets and prevent Apple from competing on the platform as well as offering it.
The most recent dispute between Apple and Spotify occurred in late 2022, when Apple rejected an app update from Spotify that would have added audiobook support. Spotify tried to guide users to buy books online and listen to them in the app, and Apple protested. Spotify was eventually forced to remove all in-app information about how to purchase audiobooks on the Spotify website, thus allowing the app to be approved.