At the end of the previous year, Daniel Ek, Spotify's CEO, announced that the company would lay off workers, which many people believed would increase the online music streaming platform's efficiency.
Nevertheless, after just four months, executives at the company are beginning to understand the daunting challenge of filling the roles of more than 1,500 employees.
In the first quarter of 2024, the music streaming platform recorded €179 million in revenue, which was slightly lower than their expected €186 million. However, Spotify still saw impressive revenue growth, with $3.6 billion compared to $3.8 billion in the same period last year.
Despite not meeting their targets for monthly active subscribers and margin profitability, investors remained optimistic and sent shares up on Tuesday morning.
While addressing investors after the release of the earnings, Spotify CEO Daniel Ek, never shied away from discussing the issues that obstructed the streaming platform from attaining its target for the first quarter of 2024.
Ek spoke about the challenges that are traced to effective staffing to be why the company was unable to reach the set target for the first quarter of the Year.
"One of the biggest challenges is the impact of our reduction in workforce last December [...] Although it might seem unquestionable because it seems like the right and most strategic decision to make, Spotify Layoffs disoriented our daily activities more than we expected, it took us a while to be back on track, but it's been over 4 months we've been in this new transition and I can say we are back and running," he said.
Just before Spotify off workers, Ek penned the reason for the layoffs in a memo that was passed to investors late last year.
"The global economic growth has slowed down and Spotify is not excepted from the ongoing expense in capital. This has brought me to a conclusion that will align Spotify to our future goal also a big step to better efficiency for our company
[...] I have made the hardest decision to cut down our total headcount of workers to 17% across the group of companies."
The company had a total of 9,123 workers before Spotify's Layoffs, but right now, Spotify is left with 7,732 workers.
Spotify also revealed that the company's first-quarter earnings report of €207 million ($221 million) was initially offset by severance payments the group made to employees after the December layoff.
Last year, Microsoft's CEO, Satya Nadella, sent a memo warning the workers of the company's plan to lay off 10,000 employees by the end of March.
The move was intended to reduce expenses but came with a hefty price tag of $1.2 billion for severance payments.
This is not the first time a CEO has resorted to layoffs to cut costs. Spotify recently laid off many employees following the impact of the COVID-19 pandemic on the music streaming industry.
While companies lay off workers, paying severance pay to employees might be another issue to tackle.
Most employers' formula is a weekly payment depending on the employee's year of service, as stated in the American Employees Society.
Charlie Scharf, the CEO of Wells Fargo, has announced that the company will be laying off some of its employees in 2024.
Following the layoffs, the company will pay a total of $1 billion in severance payments to the affected workers.