Why Spotify Stock Jumped as Much as 11.5% Today

Though Spotify (NYSE:SPOT) grew its business significantly in 2023, it's continuing to cut its operating expenses, and investors are cheering its efforts. On Monday morning, CEO Daniel Ek told employees that he was laying off 17% of the workforce in line with his efforts to make Spotify a more efficient business. Shares jumped by as much as 11.5% in early trading and were still up by about 8.1% as of 1 p.m. ET.

Spotify's third round of layoffs

This isn't the first time Spotify has cut its payroll. It's the audio giant's third round of layoffs this year alone.

Management also cut original podcast spending, and in the third quarter, sales and marketing spending dropped by 18% while general and administrative costs fell by 19%. But those cuts are being accelerated with this round of layoffs.

Leaning into Spotify's operating leverage

Spotify is cutting costs because it needs to get more leverage from the business's growth. In the third quarter, revenue was up 11% and the number of users jumped 26%, despite having fewer people in sales, marketing, and other operating roles.

Notably, Spotify has not been cutting its R&D spending. That's where it's investing in the technology that will grow the business over the long term.

I think this is a positive trend for Spotify as the company learns how to be more efficient and grow its bottom line more quickly than its top line. We have started to see progress in the financial results and the stock has generated positive returns as well, so in 2024, look for more progress on the bottom line.

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Travis Hoium has positions in Spotify Technology. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.