Spotify, the Music streaming giant, said it will lay off 17% of its workforce, around 1,500 employees, to cost-cut. According to Reuters, the company's U.S.-listed shares soared about 11% to trade near their two-year high of $200.46 in early trading after letting 600 of its staff go in January and 200 more in June. 

Tech Industry Job Trends

Tech companies, including Amazon and Microsoft-owned LinkedIn, are undergoing additional job cuts following earlier reductions this year. In a letter to employees, Spotify CEO Daniel Ek explained that the company had hired more in 2020 and 2021 due to lower capital costs. Despite increased output, the connection was attributed mainly to having more resources. Spotify anticipates charges of about 130 million to 145 million euros in Q4 due to the layoffs, with the majority recorded in the first and second fiscal quarters of 2024.

Spotify's Outlook And Strategy 

The company adjusted its fourth-quarter outlook, expecting an operating loss between 93 million euros and 108 million euros, a shift from the previous forecast of a 37 million euro operating profit. Spotify signed up with celebrities such as Kim Kardashian, Prince Harry, and Meghan Markle, investing more than a billion dollars to build up its podcast business and expand its market presence worldwide to reach more users by 2030. In the third quarter, price increases and subscriber growth helped the company gain a profit, and subscribers were forecasted to reach 601 million on holidays. 

The Organizational Change

CEO Daniel Ek emailed his employees the exact message shared in the blog post on Monday. The email was sent at 7:01 a.m. local time in Stockholm, Sweden, where Spotify is based. Ek stated that Economic growth has slowed dramatically, capital has become more expensive, and Spotify is no exception. A document screenshot shared with Business Insider revealed that those laid off were chosen based on eliminating duplicate roles, streamlining layers for efficiency, and optimizing the organization for Spotify's future.

CEO Ek emphasized ongoing efforts to enhance efficiency, saying that the significant job cut might seem large given the company's recent strong performance and financial results. However, the company appears more productive but less efficient by most metrics. Ek stressed how important it is for businesses to increase efficiency and productivity as they need to weigh both and become relentlessly resourceful. 

Beginning Monday, the impacted workers will receive notice of the severance details, including healthcare coverage, PTO conversion, approximately five months of severance pay, immigration, and career support. 

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Looking Ahead

The CEO mentioned that they debated considering more minor cuts throughout 2024 and 2025; yet, considering the gap between the financial goal state and current operational costs, reducing costs was the best option aligned with the company's objectives.

Cutting the team size is a challenging but necessary step toward building a more robust and efficient company. The Spotify of the future must embody relentless resourcefulness in how it operates, innovates, and tackles challenges beyond a basic definition; it's about preparing for the next phase, where being lean is not just an option but a necessity.

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