Spotify CFO Hints at More Layoffs in Earnings Call
Like most earnings calls, Spotify’s tend to be a combination of optimism and deflection amid buzzwords like “flywheels” and “toolboxes,” and co-founder and CEO Daniel Ek is among the best at answering direct questions vaguely — a key survival tool for any business head.
But Tuesday’s call, arriving against the backdrop of the company’s first-ever subscriber price increases in the U.S., found Ek and chief financial officer Paul Vogel more defensive than usual as they worked to bolster investor confidence in the face of the dollar-per-month U.S. price increases — which the company announced on Monday, the day before the earnings call, and only after each of its competitors had already raised their prices.
Yet buried in one of the answers was a suggestion that more layoffs are to come at a company that is the world’s largest paid music-streaming service by a long shot — it announced that it now has 220 million paying subscribers — but likely remains years from profitability. The company cut some 6% of its workforce earlier this year and laid off an additional 200 employees in June.
In response to a question about how they plan to keep operating expenses (“op-ex”) efficient while still having the right level of investment, Ek spoke of the company’s growth during the pandemic before conceding, “We probably got a little bit ahead of ourselves in that investment, so we’ve rightsized our staff.
“We invested on the backdrop of all the amazing indicators that we saw, and that translated really well into subscriber growth,” he continued. “We feel really good about those investments, but we obviously got ahead of ourselves a little bit, so we’re going to stay steady on the op-ex investments we’ve made.”
The hint about layoffs came next when Vogel responded, “Q2 was last quarter where we had headcount higher year over year, and we expect our year over year headcount to be down in Q3 — we’ll see where that goes going forward,” he said. “We’re continuing to be more efficient and feel really good about where we are, so you will see some of that efficiency have even more of an impact in the back half of the year with respect to the op-ex.” A rep for the company said the remark may have been intended to reflect the layoffs earlier in the year, rather than new ones, but did not have further comment.
Also during the call, the two noted that investors should not expect to see a positive impact in ARPU — average revenue per user — from the company’s subscriber price hike until the end of the third quarter of this year, but expect a more substantial impact in the fourth quarter.
Ek noted at least twice that the company has raised prices more than 50 times in the past (although never before in the U.S., its largest market), but also said that the company had waited to raise them while “trying to build more value,” concluding that “a new tool in our toolbox is the ability to raise prices.”
The company’s long reluctance to raise prices presumably reflected a deep reluctance to lose any market share or ARPU, even as its competitors raised their prices and the industry increased pressure on the company to do so. Surveys have long shown that consumers are willing to accept a price hike for streaming, given the low streaming royalties that musicians and especially songwriters receive for the use of their work.
Ek also downplayed concern about TikTok’s long-expected music-streaming service, which recently launched in Brazil and Indonesia. “Competition is nothing new,” he said. “We’ve faced some formidable competitors in the past.”
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