'Too ambitious': Spotify cuts 6% of employees after operations costs outpace revenue growth

Spotify CEO Daniel Ek announced in a blog post that the company would be shedding 6% of its workforce after the company's growth outpaced its revenue.

The 1,000-word memo eventually dropped the bomb in the sixth paragraph to let employees know Spotify had made "the difficult but necessary decision to reduce [its] number of employees."

The CEO then revealed that the company's "OPEX" [operation expenses] had grown too large to maintain:

"In 2022, the growth of Spotify’s OPEX outpaced our revenue growth by 2X," Ek explained, adding "that would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap."

Ek is also shouldering some of the blame for over-investing, saying that he believed the company's "broad global business" would "insulate" it while ad revenue slowed during the height COVID.

"I was too ambitious in investing ahead of our revenue growth," the Spotify chief said.

"And for this reason, today, we are reducing our employee base by about 6% across the company. I take full accountability for the moves that got us here today," he confessed.

The layoffs amount to roughly 600 departures and a hit of $50 million, according to NBC News, with employees receiving five months of severance, vacation pay, and health care coverage for the duration of their severance period. The streaming giant also says it will work with anyone who has immigration status connected to employment and will also assist with job-seeking services for two months.

The trend for tech companies is a downward spiral in early 2023, as Spotify joins Microsoft, which cut 10,000 jobs just a week before. Microsoft's CEO likened the fight against a shrinking economy to an attempt to "defy gravity."

In the first week of 2023, Amazon also parted ways with 8,000 employees, with Meta rounding out the last quarter of 2022 with 11,000 layoffs.

Spotify stock rose nearly 25% in the month leading up to the job cuts, as the company looks to bring forth a "steady stream of innovations" unlike anything that has been seen before, according to the CEO.

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