Spotify's 3 Layoffs: Hitting A False Note?

Spotify. NYSE: SPOT

Mon Dec 4, 2023

A sad day for 1500 Spotify employees. As the world's largest online music streaming service provider cut 17% of its workforce. Barely three weeks before Christmas. The season of giving! To quote CEO Daniel Ek: "Rightsizing our costs for a new economic reality."

Mon Jun 5, 2023

200 employees in Spotify's Podcasting Division had their last day. VP Sahar Elhabashi had this to say: "Undertaking a strategic realignment."

Mon Jan 23, 2023

590 Spotify "bandmates" bid goodbye to their colleagues. Daniel Ek announced: "I take full accountability for the moves that got us here today." 

Familiar corporate jargon? 

There is absolutely no nice way to break bad news.

But you can't help wondering.

Could Spotify had avoided this in the first place?

Or, more fundamentally, were "surplus" employees their only problem? 

Let's dig into the chart. A picture, they say, is worth a thousand words.

In the six years from 2016 to 2022, Spotify:

• Grew its revenue from USD 2952 mill to USD 11727 mill. A 297% increase. Full marks to its engagement with digital audio creators, authors, artists, record labels and media companies! To its paid subscriber growth! To its diversification into audiobooks and exclusive podcasts. And to its numerous partnerships. With Sony, Microsoft, ESPN, Netflix, DC, Roblox and the like!

• Expanded its global full-time workforce from 2084 to 8359. A 301% increase. So headcount kept pace with top line. And not just during the pandemic (as many tech firms had famously done). Employee output remained unchanged at an annual USD 1.4 mill per head. Of course, this was spread across content production, customer service, sales, marketing, research and development, administrative and other functions. On average, therefore, every new Spotify recruit was as productive as his/her predecessors. Neither better nor worse.

• Earned positive operating income only once (in 2021).

• Achieved positive EBITDA only thrice (in 2018, 2019 and 2021).

• Ended the period with 54% lower yearly operating cash flow than it had started with.

All this from a company founded in 2006. No longer a fledgling startup!

Excerpts from top management memos:

"Capital has become more expensive." 

Not quite the employees' fault, is it? Employees don't control inflation. Or bank interest rates. Or even the exchange rate.

"Being lean is not an option but a necessity."

True! But employees don't hire themselves. The last time we checked.

"We still have too many people dedicated to supporting work."

Got it! But employees don't assign roles to themselves, do they?

"In hindsight, I was too ambitious in investing ahead of our revenue growth."

Aha ... there you have it!

Will Spotify indeed recover into a "relentlessly resourceful" team and into a "productive and efficient" business as Daniel Ek envisions it?

Or do they need to acknowledge and solve other real underlying issues?

Or, God forbid, is it too little, too late for their business model?

Have your say. In the comments below.

Until next time. :)