What Spotify's CFO Said About Future Layoffs

Music streaming giant Spotify will lay off 6% of its workforce, said CEO Daniel Ek in an internal memo sent out today. While Ek did not reveal exactly which employees will be affected, but stated it would affect "less than 9,800".

Spotify announced in October that they had laid off 38 staff from Gimlet Media and Parcast Podcast Studios. Additionally, 11 original podcasts were terminated by Spotify.

Daniel Ek

Tech industry employers are being hit hard with layoff news. Spotify CEO Daniel Ek announced today that his company would cut 6% of its global workforce - or approximately 600 jobs - and eliminate 38 roles at Gimlet Media and Parcast podcast studios. It follows other Silicon Valley company actions like Alphabet's 12,000 job cuts and Intel freezing hiring in its desktop/laptop chip division for two weeks.

Ek, in an email to staff, noted that these changes would be difficult but necessary in order to deliver on our mission of connecting the world through music. He further mentioned that those affected would receive compensation including an outplacement package and career transition assistance should they find no new employment opportunity within Spotify.

Leadership experts often describe a CEO memo announcing layoffs as generic; Ek's note stands out from this mold as it seems more direct and "callous". According to Adam Galinsky of Leadership Expertise International.

On their earnings call, Ek and CFO Paul Vogel reiterated that Spotify's restructuring should allow it to reach breakeven in podcast subscription revenue within several years and increase gross margins to 30% within five. Both men noted that Spotify had delayed raising prices too long and hoped this move would help attract more premium users.

Reluctant to increase prices had long been motivated by relatively low royalties paid to musicians and songwriters for streaming content, yet recent surveys indicate that consumers are willing to pay more for podcasts and other streaming services.

Vogel recently presented to investors his views of the current macroeconomic environment as being "choppy", with inflation and foreign currency fluctuations having an effect on revenue. Given these volatility issues, Vogel stated that his company remains focused on investing in products which will drive growth while providing enhanced user experiences; additionally he saw potential in exploiting its platform in emerging markets where there was strong traction and growth potential.

Paul Vogel

Recent months have seen many tech firms reduce hiring or announce layoffs. One such firm was Spotify, which laid off 38 people from Gimlet Media and Parcast podcast studios in October as it cut ad revenue forecasts and cut forecasts as its chief financial officer, Paul Vogel, informed employees the firm is aware of global uncertainty regarding economic issues.

Tech firms are struggling to achieve profitability as interest rates increase and consumer spending declines, and as many have invested in new technology that has yet to pay off - further hindering revenue growth and raising questions among investors about whether current models are sustainable.

Apple, along with several major tech firms, is feeling the strain from both pandemic and inflation pressures. Apple recently reduced their sales forecast with CEO Evan Spiegel attributing it to "generally weakening demand in Europe and China", along with supply chain issues. Furthermore, this company plans to lay off several employees in its production divisions across both America and Asia.

Lyst announced plans to reduce its workforce by around 25% - or roughly 1,200 people. They also plan on selling Flexport Logistics Business for 13% of stock. Lyst further warned they will make further reductions to save costs.

Even with consumer spending down, tech companies are investing in new technologies while prioritizing efficiency and cost reduction. Some firms, like Tinder owner Match Group Inc, have announced plans to reduce job numbers in both the U.S. and other countries; slow hiring in some markets has already begun and impact assessments for rising interest rates are underway.

Intel is one of several other companies who has recently announced layoffs or reduced hiring, ceasing recruitment of new employees in its laptop and desktop chip division and cutting its headcount by 10%; as well as slowing hiring at its data center and mobile chip units due to slow sales of its personal computers.

Investors

As interest rates increase and investors show less enthusiasm for risky tech stocks, companies will likely reduce payrolls to reduce expenses and ease cashflow issues - potentially creating an extremely challenging economic climate for employees and their families.

Investors should monitor earnings calls and announcements from tech companies closely for any announcements about layoffs or company reductions, particularly since several major players have already indicated they will make cuts this year.

Zoom Video Communications will lay off 1,300 workers - or 15% of its workforce - across all departments at its company, according to CEO Eric Yuan's blog post. Furthermore, Yuan plans on cutting his base salary by 8% during fiscal year 2019/20 and forgoing any corporate bonuses as part of this restructuring effort.

Tinder owner Match Group announced in September it would cut 8% of its workforce due to slowing revenue growth from Tinder's core business and pandemic impacts. Furthermore, offices will close in the United States while staff positions were cut in other countries.

Spotify also announced plans to cancel six podcasts and reduce workforce by 200 employees or 2% worldwide, as it sought to implement a uniform business model while supporting creator communities more efficiently.

Automotive industries are experiencing layoffs at an increasing pace. Ford recently announced it will cut 3,000 jobs as it shifts towards electric vehicles; Indian transportation company Ola has reportedly let go of around 1,000 employees to focus on its electric car division.

Retailer Nordstrom has also reduced job numbers this year. Their third-quarter earnings call highlighted lower-than-expected sales and profit growth, which they blamed on an economic slowdown and changes in consumer shopping patterns. They have also experienced stock price drops due to interest rate hikes making borrowing money more costly for their customers - making it harder for Nordstrom to attract shoppers both offline and online.

Analysts

Recently, the tech industry has witnessed an increasing number of layoffs. Companies such as Microsoft, Alphabet (Google's parent), Spotify and others have already let go a significant number of employees and many more could follow in due to an unstable macroeconomic climate that has made consumers and advertisers warier about spending. These layoffs can be partially explained by consumer and advertiser hesitance to commit spending money - leaving these firms facing difficulties as consumers and advertisers become less inclined to purchase items they consider luxury items compared to before.

Spotify announced in January that they were cutting 6%, or approximately 600 employees, from their workforce, following an earlier reduction of 38 staff at Gimlet Media and Parcast podcast studios in October. CEO Daniel Ek explained these adjustments were necessary in order to be more efficient and speed up decision-making processes, in addition to cutting focus on ad-supported listeners to become profitable.

Dropbox has also recently been cutting employees, with 16% or around 350 jobs being cut during its latest round of layoffs. Dropbox cited economic pressures and shifting focus away from desktop products toward mobile devices as reasons for these cuts.

This announcement came amid declining revenue and an increasingly difficult macroeconomic environment for technology firms, and as investors remain wary about its long-term viability; many expect its slowing pace over coming quarters to lead them away from investing.

Companies such as online retailer eBay have recently been cutting jobs as they try to remain competitive in an unstable global economy. According to them, this layoff will allow them to stay afloat by eliminating 500 employees worldwide.

Software giant Atlassian has also taken measures to cut jobs. They will lay off 500 employees worldwide by shifting resources towards areas performing better; those affected will receive "generous severance packages, extended healthcare coverage and immediate outplacement support". Unfortunately, since going public last year they have struggled to turn a profit.