Spotify cuts 17% of its total workforce
On Monday, an internal memo and a blog post announced that the leading streaming platform was cutting 1,500 jobs, an equivalent to 17% of its total workforce.
“Economic growth has slowed dramatically and capital has become more expensive,” Spotify’s CEO Daniel Ek wrote in the email and post. “Spotify is not an exception to these realities.”
Katarina Berg, Spotify’s chief HR officer, made available an FAQ document on Spotify’s internal platform Workplace stating that people departing the company were selected due to: “a combination of factors including but not limited to organizational design, such as duplication of roles, streamlining layers to ensure efficiency, and optimizing our organization for the next chapter of Spotify.”
The company had already cut 600 employees in January and another 200 in June.
In the memo, Ek also discussed financial challenges created by the debt Spotify took on in February 2021, when the platform raised $1.3 billion by offering exchangeable notes due in 2026: “In 2020 and 2021, we took advantage of the opportunity presented by lower-cost capital and invested significantly in team expansion, content enhancement, marketing, and new verticals,” he said. “These investments generally worked, contributing to Spotify’s increased output and the platform’s robust growth this past year.” He then added, “However, we now find ourselves in a very different environment […] And despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big.”
When the streaming giant raised that debt, the market was experiencing low borrowing costs, and the US Federal Reserve had aggressively cut interest rates to prop up the country’s economy during the pandemic. Today, we see inflation-fighting rates of about 5.5%.
Spotify’s latest layoffs are part of a strategy to cut costs, allowing the company to raise $1.3 billion in cash to pay off creditors. Refinancing that debt would be a more expensive alternative.
Spotify’s CFO is out
Following the layoffs described above, Spotify announced on Thursday that its CFO, Paul Vogel, would also be leaving the company:
“Spotify has embarked on an evolution over the last two years to bring our spending more in line with market expectations while also funding the significant growth opportunities we continue to identify. I’ve talked a lot with Paul about the need to balance these two objectives carefully. Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences. As a result, we’ve decided to part ways, but I am very appreciative of the steady hand Paul has provided in supporting the expansion of our business through a global pandemic and unprecedented economic uncertainty.”
A SEC filing, posted before the announcement on Thursday, showed that Vogel exercised 47,859 stock options on Tuesday, selling those shares at one of the highest prices of the past two years and cashing out a total of $9.377 million, only 24 hours after the global layoffs were made public.