Markets: Spotify Will Spend $1B On Stock Buybacks

  • General
  • August 23, 2021
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  • 4 minutes read

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Music streaming giant Spotify is embarking on a fresh stock buyback program to presumably bump up its stock. It’s initiated a new buyback program that’ll run from 2021 to 2026.

  • Spotify will spend a total of $1bn to repurchase its shares over the next five years. The buyback will run from August this month to April in 2026. This is the second buyback of the exact size that Spotify is making, after doing its first in 2018, the same year it became a public company.
  • Over the past year, Spotify’s stock (NYSE: SPOT) has dropped from a peak of $387.44 to about $217 right now, a 44% drop. With this data, it makes sense that the company is deploying some cash to repurchase its shares, given it’s buying low.
  • Public companies spending big sums to buy back shares isn’t new. It’s done as a way to return money to shareholders as well as boost the prices of their individual shares over the buyback period. Theoretically, by limiting the number of shares in circulation, there’s lesser supply and increased demand that’ll prop up the stock price.
  • For Spotify, its latest $1bn buyback will last for five years, implying $200mn for each year. At that price, it’ll not cause a problem to Spotify’s wallet given the company reported having $3.6bn in cash at June end. 
  • But, Spotify is not usually the type of tech company that spends big on stock buybacks. It’s usually more established types like Apple, Alphabet, and Facebook, the type that brings in a steady stream of profits every time. In Spotify’s case, the company is barely profitable; it reported a paltry $3.5mn in profit in the first half of 2021, so it’ll be digging deeper into its pockets to pay for its buyback. 
  • The latest buyback from Spotify signals to investors that the company is confident in the long-term prospects of its business, even as its stock performance is shaky at the moment. In the music streaming business, Spotify has built a stronghold for itself as it rivals Apple Music. It’s then betting on the podcasting segment to drive growth ahead of the competition.

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