Spotify CEO Daniel Ek informed staff members in a Monday note that the music and audio platform would reduce headcount to streamline operations. The announcement implies that 600 of the company’s 9,800 employees will lose their positions.
“While we have made great progress in improving speed in the last few years, we haven’t focused as much on improving efficiency. We still spend far too much time syncing on slightly different strategies, which slows us down,” Ek wrote. “And in a challenging economic environment, efficiency takes on greater importance. So, in an effort to drive more efficiency, control costs, and speed up decision-making, I have decided to restructure our organization.”
The note added that the growth rate for operations expenditures is significantly higher than the growth rate for revenues.
“That would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap,” Ek continued. “As you are well aware, over the last few months we’ve made a considerable effort to rein-in costs, but it simply hasn’t been enough. So while it is clear this path is the right one for Spotify, it doesn’t make it any easier.”
The company’s third-quarter earnings report showed that total monthly active users increased year-over-year by 20% while revenue rose 21% over the same period. Operating expenses increased 65% as a result of “higher personnel costs primarily due to headcount growth.”
Share prices for Spotify rose 3.7% on Monday morning; the company’s stock has plummeted more than 47% over the past year, outpacing a 9% decline in the S&P 500 and an 18% decline in the technology-heavy NASDAQ Composite.
Spotify is one of several technology companies to announce layoffs in recent weeks as a response to overzealous hiring in the sector and broader economic woes. Microsoft revealed that the company would dismiss some 10,000 employees, while Google will reduce its headcount by approximately 12,000 positions, and Amazon plans to dismiss 18,000 employees.
“Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us. In hindsight, I was too ambitious in investing ahead of our revenue growth,” Ek continued. “I take full accountability for the moves that got us here today.”
More than 46,000 workers have been discharged from prominent American technology companies in the first month of 2023, according to a report from Crunchbase, even after firms in the sector dismissed 107,000 positions last year. Spotify is headquartered in Sweden.
White House Press Secretary Karine Jean-Pierre deflected questions from journalists last week regarding the technology sector’s sudden increase in layoffs. One reporter noted that President Joe Biden has appeared “quite optimistic” in his latest statements about the economy and asked whether the dismissals are a “matter of concern” for the administration. Jean-Pierre responded that the commander-in-chief watches “anytime there are reports of Americans losing their jobs.”