Music streaming giant Spotify said on Monday that it will lay off around 1,500 employees, or 17% of its workforce, to bring down costs, after letting 600 of its staff go in January, and 200 more in June.
Its U.S.-listed shares soared about 11% to trade near their two-year high of $200.46 in early trading, reports Reuters.
After a round of job cuts at the start of the year by tech companies, some have begun reducing their workforce again, with announcements coming from Amazon to Microsoft-owned LinkedIn.
In a letter to employees, Spotify CEO Daniel Ek said the company hired more in 2020 and 2021 due to the lower cost of capital and while its output has increased, much of it was linked to having more resources.
Spotify will incur about 130 million euros to 145 million euros in charges in the fourth quarter due to the layoffs, the company said, adding that majority of the cash component of the charges will be recorded in the first and second fiscal quarters of 2024.
The firm said it now expects fourth-quarter operating loss between 93 million euros and 108 million euros, compared with its prior forecast of an operating profit of 37 million euros.
Spotify invested more than a billion dollars to build up its podcast business, signed up celebrities such as Kim Kardashian, Prince Harry and Meghan Markle, and expanded its market presence in most countries in the world in its quest to reach a billion users by 2030.
In the third quarter the company swung to a profit, aided by price hikes in its streaming services and growth in subscribers in all regions, and the company forecast that its number of monthly listeners would reach 601 million in the holiday quarter.
Ek told Reuters at that time the company was still focusing on efficiencies to get more out of each dollar.
On Monday, he said a reduction of this size will feel large given the recent positive earnings report and its performance.
“By most metrics, we were more productive but less efficient. We need to be both,” Ek said.
The company will start informing affected employees on Monday. Employees will get about five months of severance pay, vacation pay, and healthcare coverage for the severance period.
“We debated making smaller reductions throughout 2024 and 2025,” Ek said. “Yet, 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.”
