spotify could be the next tech firm to layoff employees

The tech industry is going through dramatic changes as companies have been forced to let go of thousands of employees roughly two years after they significantly upended their ranks during the pandemic.

Large companies in the space including Microsoft (MSFT), Alphabet, Meta Platforms, and Amazon have already announced massive layoffs in preparation for a slowdown in the global economy that everyone seems to be anticipating.

Meanwhile, according to a report from Bloomberg, Spotify – the world’s largest audio streaming platform – would be the next in line to significantly cut its headcount. The article, which cited people familiar with the company’s plans, did not specify how many people would be affected by this decision.

According to the firm’s annual report, by the end of December 2021, Spotify had 6,617 employees. Almost half of these workers were in the R&D department while nearly 4,000 were based in the United States.

In October 2022, the company also terminated 38 employees who were associated with two podcast production studios it previously acquired – The Gimlet and Parcast – while it also cancelled 11 original shows.

Spotify’s Paid Subscriber Base Has Been Growing at a Slower Pace

The pandemic was particularly positive for the streaming platform as users flocked to online solutions to entertain themselves while confined within their homes. By the end of 2020, the platform grew its monthly active users (MAUs) by 27% compared to the previous year.

In 2021, the figure grew by 18% as the tailwind provided by the pandemic started to fade. Meanwhile, by the third quarter of 2022, its MAUs grew by 20% compared to the same period a year ago. However, the number of premium subscribers only advanced by 13% on a year-on-year basis compared to 24% in 2020 and 16% the year after.

This indicates that even though more people are using the streaming platform – roughly 456 million according to Q3 2022 figures – its paid subscribership is not growing as fast as it did in previous years.

Moreover, Spotify (SPOT) is still losing money despite the continued growth of its top line. During the nine months ended on September 2022, the company generated revenues of €8.56 billion and operating losses of €428 million.

Its cash reserves by the end of this period stood at around €4 billion and its cash burn was relatively small at around €69 million.

Even though the company is not experiencing any kind of financial distress, Spotify may be aiming to protect its finances from a sharper-than-expected downturn or it could be taking the opportunity to downside its headcount to establish a clearer path to profitability.

Spotify Plans to Ramp Up Advertising Revenues and Grow MAUs to 1 Billion

During the Q3 2022 earnings call, Paul Vogel, the company’s Chief Financial Officer, commented: “This year has been one of investment, hitting both gross margin and operating expenses and while it is too early to provide any guidance with respect to 2023, we do expect our profitability rates to improve relative to 2022 as we grow revenue, lap certain investments and deploy capital efficiently.”

In June this year, Spotify hosted an Investor Day event in which it laid off its vision for the coming years. According to some of the statements made by top executives during the event, the company would be aiming to become the preferred platform for creators who would like to reach the masses.

It is the firm’s goal to double its user base to 1 billion by relying on the strength of its business model – personalization, a freemium subscription, and making the platform available on every popular device out there.

Advertising may also grow to the point of accounting for a larger share of Spotify’s total revenues. In the long run, the firm said that it expects to bring in over €10 billion per year from this segment of the business. In 2021, advertising revenues stood at €1.2 billion.

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