Spotify slashes staff to move faster into AI – and Wall Street loves it

Spotify made a name for itself in the audio-streaming business through its hyper-personalized user experience, thanks to artificial intelligence and a team of 9,800 staffers at the end of 2022.

But after three rounds of layoffs in one year: 590 positions in January, 200 in June, and another 1,500 this week, Spotify’s investments into AI to boost margins for its podcasting and audiobook divisions look like a complete overhaul in strategy that Wall Street seems confident can work.

“Spotify is leveraging AI across its platform, launching AI DJ, simulating a traditional radio experience, in 50 additional markets and rolling out AI Voice Translation for podcasts,” said Justin Patterson, equity research analyst at KeyBanc Capital Markets, in a research note. “Coupled with audiobooks rolling out to Premium Subscribers, we believe Spotify has several opportunities to drive engagement and eventually stronger monetization.”

Shares of parent company Spotify Technology SA are up more than 30% over the last six months and up more than 135% year to date.

The company joins other tech firms in retrenching as pandemic-era demand has dried up. It also has to make up for the more than $1 billion it spent on podcasting, much of which went toward deals with celebrities to make podcasts that never materialized and acquiring podcast studios that it later shuttered.

“Economic growth has slowed dramatically and capital has become more expensive. Spotify is not an exception to these realities,” Ek wrote in a letter to staff posted to the company’s website.

Jumping on the AI gravy train

In November, Spotify unveiled a partnership with Google Cloud to overhaul how the platform recommends audiobooks and podcasts through its use of one of Google Cloud’s language models, Vertex AI Search.

Large language models like ChatGPT are computer programs trained on large sets of data that can recite human-like text and information back to users based on what the program “knows.”

Spotify introduced an “AI DJ” in February and began using OpenAI’s “Whisper” voice translation tool to translate select episodes of English podcasts into Spanish, French and German.

A representative for Spotify said in an email to CNN that the company plans to expand the technology in the future pending creator and audience feedback. They also pointed to some comments made by Ek during the company’s third-quarter earnings call, where the word “efficiency” was used more than 20 times.