In December, Spotify implemented its largest number of layoffs to date, letting go of 1,500 workers in what was celebrated at the time as a new age of efficiency by CEO Daniel Ek.
However, on an investor’s call in April following Q1 earnings, Ek blamed Spotify’s missing of certain targets on staff operational difficulties among other issues.
Earnings Call
On the earnings call, Ek celebrated strong revenue growth and having “the largest operating income we’ve ever posted.”
However, Ek also acknowledged that the company missed monthly active user growth targets for the quarter, blaming “a bit of a slowdown at the start of the year.”
Workforce Challenge
Ek outlined three main factors that led to disappointing growth numbers, one of them being related to the previously touted workforce reduction.
“Another significant challenge was the impact of our December workforce reduction. Although there’s no question that it was the right strategic decision, it did disrupt our day-to-day operations more than we anticipate,” Ek said.
Big Year
Another factor that Ek mentioned is the massive growth the company experienced in 2023, though didn’t say whether this factor had more of an impact than the workforce reduction.
“The MAU and subscription growth we achieved in 2023 not only surpassed our most ambitious forecast, but also set a record for the most significant user growth in Spotify’s history…2023 was a truly standout year and should not be a based on expectation for every subsequent year,” said Ek.
Efficient Workforce
In December, Spotify laid off around 1,500 workers, or an equivalent of 17% of its workforce in an effort to aggressively push for profitability. At the time Ek expressed his concern about people “working around work.”
“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 said in a memo announcement of the workforce cuts.
Surprisingly Large Layoffs
In the memo, Ek tried to reassure workers who may be questioning the layoffs despite such a successful year.
“I realize that for many, a reduction of this size will feel surprisingly large given the recent positive earnings report and our performance. We debated making smaller reductions throughout 2024 and 2025. 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,” said Ek in December.
Reality of Output
While Ek was proud of the success seen in 2022 and 2023, he saw it as an inefficient success.
“When we look back on 2022 and 2023, it has truly been impressive what we have accomplished. But, at the same time, the reality is much of this output was linked to having more resources. By most metrics, we were more productive but less efficient. We need to be both,” Ek said.
Surprise at the Dip
Fast-forward to today and the overwhelmingly positive results achieved seem more mixed compared to the recent Q1.
Fortune writer Ryan Hogg attributed this to “the apparent collective surprise at how that can affect operations in the short run,” saying it “marks a dash of hubris for the newly bullish streaming group.”
Finding Footing
In the earnings call, Ek was hopeful about the company’s ability to navigate the workforce reduction, saying it took some time to adjust to the new normal.
“It took us some time to find our footing, but more than four months into this transition, I think we’re back on track,” Ek said.
Workforce Layoffs
Spotify is one among many tech companies that are trying to experiment with massive layoffs in their industry.
According to TechCrunch in May, huge companies like Tesla, Amazon, Google, and Microsoft have all conducted sizeable layoffs this year. Since the year began there have been 60,000 job cuts across 254 tech companies.
Why Such Big Layoffs?
The layoffs at large companies, despite some having successful performance metrics have some wondering why they are happening.
There are many theories that attempt to explain the trend, but one seems to be the rise of AI, which can increasingly take over the work that would require a person or even a team of people to do it much less.
Dam Has Broken
There has also been a change in the perception of layoffs. Previously, layoffs were seen as something only failing companies did and were saved as a last resort.
But now that so many successful companies are leveraging layoffs for a profit strategy, it’s become much more normalized, giving companies the freedom to experiment with it without as much negative stigma.
