After laying off around 1,500 employees in December 2023, Spotify is starting to feel the consequences of working with a smaller team.
In the first quarter of the year, analysts found that the music streaming giant Spotify failed to meet its guidance on profitability and monthly active user growth.
Spotify’s Massive Round of Layoffs
Despite creating a new deal with Universal Music Group to pioneer a fresh approach to music discovery, Spotify needed to make the streaming service more efficient. One way of achieving this was through the company’s largest round of layoffs.
HR Grape Vine reports that CEO Daniel Ek let go of 1,500 employees as he endeavored to guide Spotify into a new era of media.
The Impact of the Layoffs
The layoffs seemed to have a positive impact on the music-streaming giant for the first three months of 2024. Between January and March, the streaming service hit record quarterly profits.
Revenue grew by double-digit numbers, reaching $3.8 billion in the process. However, this record did not necessarily meet all expectations across the board.
Spotify CEO Blames the Staffing Shortage
While 2024 has had significant growth compared to 2023’s numbers, failing to make guidance on profitability and monthly active user growth numbers may be a bad look for Spotify.
Ek blamed operational difficulties for the failure, stating that a smaller team made operations more difficult to hit target earnings at the start of the year.
Underestimating the Work of 1,500 Employees
Ek seemed to underestimate the importance of 1,500 employees—or 17 percent of the Spotify workforce—when he decided to lay them off.
The music streaming service responded to the falling share price by laying off employees and compensating them with a 5-month severance package.
Employees’ Lack of Meaningful Work Contributed to Layoffs
Spotify’s massive round of layoffs occurred because employees weren’t performing meaningful work.
“Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact,” Ek wrote in an email to employees. “More people need to be focused on delivering for our key stakeholders–creators and consumers. In two words, we have to become relentlessly resourceful.”
Investors Support Spotify CEO’s Decision
“More people need to be focused on delivering for our key stakeholders–creators and consumers. In two words, we have to become relentlessly resourceful,” Ek said in a memo as he announced he would be cutting his workforce by 17 percent.
Investors reacted well to the news despite the few skeptical voices who questioned if layoffs were a solution to a massive problem.
Spotify Shares Jump After Layoffs
The layoffs did work for Spotify in the long run as shares in the group jumped more than 60 percent.
“Although there’s no question that it was the right strategic decision, it did disrupt our day-to-day operations more than we anticipated,” Ek said on an investor call following Spotify’s Q1 earnings release.
Spotify’s Growing Pains
Ek did not elaborate on what aspects of operations the layoffs mostly affected, but he did state that the company has changed operations to compensate for the change in staff.
“It took us some time to find our footing, but more than four months into this transition, I think we’re back on track and I expect to continue improving on our execution throughout the year getting us to an even better place than we’ve ever been,” Ek said.
Investors Not Shaken By Missed Goals
The lack of revenue growth and monthly active users has not shaken investors like it had when Tesla announced its latest round of recalls or when Netflix said it would stop sharing subscriber growth numbers.
Instead, shares in the group jumped up more than 8 percent in the stock market after it opened on April 23.
Spotify’s Growing Pains Are Not Justified
While the tough round of layoffs at Spotify did cut off the excess fat from the company, the music streamer should have been more prepared for the massive change.
Whether this massive change came in daily workflows for the remaining staff or an updated prediction for the Q1 earnings, Spotify is a large enough company to prepare for these changes when they happen.
The Season of Layoffs
Spotify wasn’t alone in cutting costs and jobs last year. Nearly 1,200 tech companies downsized their staff, according to Layoffs.fyi.
Among these companies are Amazon, Twilio, Zulily, Chewy, Marvel, and others. Many of these layoffs came right before the winter holidays.
