Spotify Shares Surge as It Cuts 17% of Its Workforce

KEY TAKEAWAYS
i. Spotify laid off 17% of its workforce in a third round of job cuts as it moves to contain expenses.

ii. The streaming music service already reduced headcount in January and June.

iii. CEO Daniel Ek blamed a changing economic environment that has created slower growth and higher capital costs.

Spotify Technology (SPOT) shares soared over 7% in early trading Yesterday as the streaming music service slashed its workforce in its latest effort to cut costs.

Spotify CEO Daniel Ek wrote in a letter to employees that the cuts would reduce headcount by about 17%, or roughly 1,500 employees. Ek explained that the move was needed because economic growth ”has slowed dramatically and capital has become more expensive.”

He noted that the company had debated whether to make smaller reductions over the next two years, but added that “considering the gap between our financial goal state and our current operational costs, I decided that substantial action to rightsize our costs was the best option to accomplish our objectives.”

Ek pointed out that Spotify took advantage of lower-cost capital in 2020 and 2021 to expand its operations, but now “we find ourselves in a very different environment.” He said despite efforts to reduce expenses this year, “our cost structure for where we need to be is still too big.”

This is the third layoff for the company this year. Spotify eliminated some 600 workers in January, and approximately 200 in June. The news sent shares of Spotify Technology to their highest level in almost two years.

Technical Analysis
SPOT is trading near the top of its 52-week range and above its 200-day simple moving average.
Investors have been pushing the share price higher, and the stock still appears to have upward momentum. This is a positive sign for the stock's future value.