Spotify Reveals Up to $157 Million in Anticipated Layoff-Related Expenses, Updates Q4 Forecast

spotify layoffs
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spotify layoffs
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Spotify expects to incur sizable once-off expenses in connection with its recently announced layoffs. Photo Credit: Bastian Riccardi

Spotify expects to spend between €130 million and €145 million ($140.38 million and $156.58 million) to cover costs associated with the layoffs it announced yesterday, according to a new regulatory filing.

CFO Paul Vogel disclosed the sizable once-off charges in a Form 6-K today, after CEO Daniel Ek on Monday revealed Spotify would trim about 17 percent of its team.

According to the same message from Ek, the “average” laid-off staffer – approximately 1,500 employees have been affected overall, including a reported 240 or so professionals in Sweden – will receive five months’ worth of severance pay as well as healthcare coverage during the period.

Bearing in mind the point, the mentioned filing shows that the resulting €130 million to €145 million in expenses will consist “primarily…of severance-related payments and the impairment of real estate assets.”

On the latter front, Vogel also made clear plans to optimize Spotify’s “office space footprint in connection with the reduction in the employee base.” Time will tell exactly what this involves, but the business, in which ValueAct Capital invested closer to the year’s start, had already moved to vacate five floors of its Manhattan offices in 2023.

In any event, “the majority of the cash component of” the expenses will arrive during 2024’s first and second quarters, Vogel communicated. Nevertheless, Spotify has updated its Q4 2023 forecast to reflect an anticipated loss of between €93 million and €108 million ($100.38 million and $116.57 million), the CFO relayed.

Bigger picture, Spotify’s latest layoffs and podcast cancellations are components of a broader push for efficiency and profitability.

Judging by the movement of Spotify stock (NYSE: SPOT) on the week, investors appear supportive of the initiative. After closing at $180 on Friday, SPOT ended today at $199.32 – up about 20 percent during the past month of trading, 143 percent since 2023’s beginning, and 165 percent from early December of 2022.

Of course, it’ll be interesting to see whether Spotify, the 52-week stock-price low of which is $71.72, can carry the momentum into 2024. Notwithstanding SPOT’s rally in recent months, some remain unconvinced of the stock’s long-term potential; around October, Monness, Crespi, Hardt & Co. analysts lowered their SPOT rating from buy to neutral and declined to set a target price.

“Spotify is riding a favorable long-term trend, enhancing its platform, tapping into a large digital ad market, expanding its audio offerings, and improving its cost structure,” Monness analyst Brian White explained at the time. “However, competition is fierce, margins thin, and we believe the darkest days of this downturn are ahead of us.”