Spotify, a popular music streaming service, has recently announced that it will be laying off about 1,500 employees, which accounts for 17% of its workforce. This is the third major round of staff cuts for the company this year, following the release of 600 staff in January and a further 200 in June. The move comes as part of a larger trend in the tech industry, as companies seek to reduce costs in response to a slower-than-expected economy.
In a letter to employees, Spotify CEO Daniel Ek explained that the company had hired more staff in 2020 and 2021 due to the lower cost of capital, but much of the increased output was linked to having more resources. The company has invested over $1 billion in building up its podcast business, signing up celebrities such as Kim Kardashian, Prince Harry, and Meghan Markle, and expanding its market presence globally in an effort to reach a billion users by 2030. Currently, Spotify has 601 million users, up from 345 million at the end of 2020.
Despite a recent positive earnings report and hitting its audience target of 601 million users early, Ek noted that the gains were mainly due to the expanded resources and that the company needed to be more productive and efficient. Affected employees will receive about five months of severance pay, vacation pay, and healthcare coverage for the severance period. The company will also offer immigration support to employees whose immigration status is connected with their employment.
Ek explained that while they debated making smaller reductions throughout 2024 and 2025, he decided that a substantial action to rightsize their costs was the best option to accomplish their objectives, considering the gap between their financial goal state and their current operational costs. This move by Spotify reflects the challenges that many tech companies are facing in the current economic climate.
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