Shares of Spotify (NYSE:SPOT) climbed on Monday following reports the music-streaming service was planning job cuts as soon as this week, joining a slew of companies in announcing layoffs to lower costs.
While Spotify has lost nearly 50% over the past year, mainly due to a broader tech selloff, the stock gained 2.8% in premarket trading and has risen more than 20% since 1 January.
In October, Spotify, which currently has about 9,800 employees, laid off 38 staff from its Gimlet Media and Parcast podcast studio.
In 2019, Spotify committed significantly to podcasting, spending over a billion dollars on acquiring podcast networks, creating software, a hosting service, and rights to popular shows like The Joe Rogan Experience.
Consequently, along with other tech companies, the music streaming giant added to its headcounts during the pandemic but was forced to make reductions in response to a shaky economy.
On Friday, Google parent, Alphabet (NASDAQ:GOOGL), announced it was laying off 12,000 workers, affecting 6% of its workforce. In the past few months, layoffs at four of the biggest US tech companies, including Alphabet's staff cuts, amount to 51,000 jobs.
In a letter to employees on Monday, Spotify Chief Executive Daniel Ek said,
"In hindsight, I was too ambitious in investing ahead of our revenue growth," and added, "I take full accountability for the moves that got us here today."
Ek said Spotify's operating expenses last year were double its revenue, calling the layoffs a difficult but necessary decision. In addition to the layoffs, chief content and advertising business officer Dawn Ostroff has decided to leave the company.
Current freemium business officer Alex Norstrom, and chief research and development officer Gustav Soderstrom, would each take on additional responsibilities and be appointed as co-presidents of the company.
PRICE TARGET: Based on 20 analyst ratings covered by TipRanks in the last three months, the stock is a Moderate Buy (11 Buys, 9 Holds). The average price target of $116.26 implies an upside potential of 12.14%.
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