Sun. Jul 21st, 2024

Spotify said on Monday that it would cut nearly a fifth of its work force, its third round of layoffs so far this year, as it has struggled to become consistently profitable after spending aggressively to expand beyond music streaming into areas such as podcasting.

Spotify’s chief executive, Daniel Ek, wrote in a note to employees posted on the company’s website that the platform now needed to “rightsize” to account for a “very different environment.” Spotify, which is based in Stockholm, will let go of about 1,500 people, or 17 percent of its staff.

“Economic growth has slowed dramatically and capital has become more expensive,” Mr. Ek said. “Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.”

Spotify’s cuts come as the technology industry reckons with the end of a decade of rock-bottom interest rates that propelled their growth, prompting the industry’s giants like Amazon, Meta and Salesforce to cut costs and shed jobs. Monday’s moves, Mr. Ek said, were about “preparing for our next phase, where being lean is not just an option but a necessity.”

Despite being the largest music streaming platform, Spotify has long struggled to be profitable because of the terms of licensing deals it has with record labels and music publishers. The company has pushed into new areas like podcasting, including buying the podcast studios Gimlet for $230 million in 2019 and The Ringer for about $200 million in 2020. It struck expensive deals with well-known figures such as former President Barack Obama and Michelle Obama, as well as Prince Harry and his wife, Meghan. More recently, the company has expanded into audiobooks.

The shifts have helped Spotify attract listeners and subscribers, but have not been a financial breakthrough. In the first nine months of 2023, Spotify lost $462 million, more than double the loss in the same period in 2022.

But the company turned a small profit last quarter, its first in more than a year, in what Paul Vogel, its chief financial officer, at the time called “an important inflection point for the business.”

Spotify had 226 million paying subscribers at the end of September and is on track to add 30 million for the full year, 50 percent more than it expected at the outset of 2023. The company recently raised prices for its subscriptions in more than 50 countries.

Spotify also has more than 360 million monthly active users whose accounts are supported by advertising. This segment has been growing faster than paid subscriptions, but it generates less revenue at a lower profit margin for the company.

The jobs cuts are the largest Spotify has announced this year. In June, Spotify cut about 200 jobs, including many involved in podcasting. Another 600 employees were let go in January.

As part of its severance package for the job cuts announced on Monday, Spotify said an average employee would receive about five months of pay.

There is little concern among investors that the company will be “cutting into the muscle” with the job reductions, said Benjamin Black, an analyst at Deutsche Bank.

The round of layoffs was not a surprise, but it was sooner and larger than expected, he said. The move was welcomed by investors, who are eager to see the company more consistently turn a profit.

Spotify’s shares, which are listed on the New York Stock Exchange, jumped about 9 percent on Monday, extending gains the company has made this year, partly reversing a long slide from a peak in early 2021. The company’s share price has more than doubled this year.

“In investors’ minds, this represents a turning point in terms of how serious the company is” about reaching profit goals, Mr. Black said. “This shows you that they are very, very serious.”

J. Edward Moreno contributed reporting.

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