Spotify (NYSE:SPOT) plans to lay off roughly 6% of its workforce, the company reported today. Continuing a recent trend among tech companies, these Spotify layoffs are occurring primarily because the company hired many employees to keep up with high demand during the pandemic.
As a result, with consumers’ consumption of technology sharply lower amid the economic reopening and greatly reduced fears about the coronavirus, multiple tech companies are dismissing the employees that they hired in 2020 and 2021.
During premarket trading, SPOT stock rallied 5% this morning after climbing 4,6% on Friday.
In October, SPOT reportedly dismissed “at least” 38 of its unionized employees who worked on its podcasts.
The Reasons Behind the Latest Spotify Layoffs
In Spotify’s case, the consumption of the company’s streaming offerings, unsurprisingly, jumped during the pandemic when most consumers were spending the vast majority of their time at home. Now, most Americans and Europeans are once again enjoying many experiences outside of their homes and many have even returned to working much of the time in offices.
Given all of these points, the company’s revenue growth last year failed to keep up with the increase in its operating costs. In fact, in 2022, its operating costs rose at more than double the pace at which its top line increased, its CEO, Daniel Ek stated today. In response to that situation, SPOT decided to take even further steps to “rein-in (sic) costs.”
On top of the layoffs, Spotify is shaking up its leadership team. Spotify’s Chief Content and Advertising Business Officer, Dawn Ostroff, is resigning, Ek stated. Meanwhile, its Chief R&D Officer, Gustav Soderstrom, and its Chief Freemium Business Officer, Alex Nortstrom, were both promoted to Co-President.
Soderstrom has spent 14 years at SPOT, and became head of its R&D efforts in 2017. Also a longtime Spotify employee, Nortstrom has been at the company for nearly 12 years and became Chief Freemium Officer in March 2020.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.