Music streaming service Spotify has announced that it will be laying off 17% of its workforce in its third round of layoffs this year. The cuts are an effort to adjust the company's workforce and achieve profitability amid slowing economic growth. CEO Daniel Ek stated in a letter to employees that the company's cost structure is still too large, despite efforts to reduce costs in the past year. While the company did not specify the exact number of employees affected, a spokesperson stated that it amounts to approximately 1,500 people.

Spotify, based in Stockholm, Sweden, had previously used cheap financing to expand its business and heavily invested in employees, content, and marketing in 2020 and 2021, a period when many tech companies were increasing their hiring efforts. However, Ek acknowledged that the company was caught off guard as central banks began raising interest rates, which can lead to slower economic growth. These challenges have prompted Spotify to make significant job cuts.

This latest wave of layoffs follows two previous rounds earlier in the year. In January, the company reduced its workforce by 6%, resulting in 600 job losses. Just four months later, another 2% of staff, about 200 employees, were let go, primarily in the podcasting division. Despite growing its monthly active users to 574 million in the third quarter of 2023, Spotify has struggled to achieve profitability, reporting a net loss of approximately $500 million for the nine months leading up to September.

The news of Spotify's layoffs comes as a slew of major tech companies, including IBM, Snap, Google, Roku, and Meta, among others, have engaged in substantial job cuts this year. These actions mark a reversal of the hiring spree that occurred during the pandemic, as millions of Americans transitioned to remote work. For example, in January, Microsoft announced a 5% reduction in its workforce, impacting approximately 11,000 workers worldwide.

Despite its financial losses, Spotify's share price has more than doubled this year. On Monday, the company's shares rose 7.5% to $194.26 in morning trade. However, the company's CEO emphasizes the necessity of being lean and acknowledges the challenging economic environment that Spotify currently faces.

In response to the layoffs, terminated employees will receive approximately five months of severance, accrued and unused paid time off, and health insurance during the severance period, according to Ek. The company plans to prioritize cost reduction to increase profitability and has implemented a $1 price increase across its US plans. Additionally, Spotify is expanding into audiobooks and is rumored to be launching a premium subscription tier called "Supremium," expected to include personalized sound capsules, 24-bit lossless audio, access to audio books, and improved library sorting options.

To achieve long-term profitability, Ek has set ambitious growth targets for Spotify, aiming for the company to be profitable by 2024 and generate $100 billion in revenue by 2030. As of now, Spotify's shares are listed on the New York Stock Exchange and were down nearly 3% to $180.69 in pre-market trading on Monday.