Music streaming Spotify has announced its intention to spend $ 1 billion by April 21, 2026 to buy back its own shares . That's about 2.5% of the company's total assets valued at $ 41.06 billion after its shares rose 5.1% amid the news. Spotify was last repurchased in 2018.
Share buyback is standard practice for publicly traded companies. It is used by, for example, Apple, Alphabet and Microsoft. The purpose of this program is to return money to shareholders, this is one of the traditional ways of their remuneration, along with the payment of dividends. In addition, when you buy back the number of free shares decreases, which in theory leads to an increase in their value.
Over the past 12 months, the value of Spotify shares has reached $ 384.44, and at the moment, even taking into account the growth against the background of the last announcement, the shares are trading at $ 215.84, so the buyback is at a low price.
Traditionally, companies' free cash is invested in their growth, but in the first half of 2021, Spotify reported a net profit of about € 3 billion on revenues of € 4.5 billion. Streaming activities also indicate a commitment to a growth strategy, just remember the exclusive podcast program and other initiatives that indicate the possibility of generating additional profits in the long term.
Spotify closed the second quarter with "€ 3.1 billion in cash and cash equivalents, cash and short-term investments . " During the same period, the company generated free cash flow of € 34 million, which is € 7 million more than in the second quarter of last year, despite “higher working capital requirements associated with payments to individual licensors (deferred in the first quarter), payments for podcasts, as well as increased advertising receivables . "
Simply put, even with mandatory payments that could potentially increase revenue and profits, Spotify still has some cash to spend. In this case, it was decided to send them to the buyback of shares. Therefore, having spent $ 1 billion over the coming years, the company is not risking anything. What's more, it will take steps to increase the value of Spotify and keep investors happy, with a buyback at a reduced price for now.
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