Spotify announced today (August 20) that it is commencing a stock repurchase program beginning in the third quarter of 2021 (i.e. the three months to end of September).
Spotify’s board has approved repurchases up to the amount of $1.0 billion, while a repurchase of up to 10 million of the firm’s ordinary shares have been approved at a general meeting of shareholders.
The reason a company might issue a share buyback are varied, but one key motivation is often when a firm believes its stock is undervalued by the market, and has the potential to grow in future.
Spotify’s market cap at the close of yesterday (August 19) stood at $39.24 billion, down by some $30 billion (or 43.4%) on its 2021 peak of $69.35 billion on February 19.
Today’s buyback news has certainly rallied some shareholder confidence in SPOT: its share price is up by over 6% on the New York Stock Exchange at the time of publication.
Spotify said that the timing and actual number of shares repurchased will depend on a variety of factors, including “price, general business and market conditions, and alternative investment opportunities”.
Spotify added that the repurchase program would be “executed consistent with the company’s capital allocation strategy, which will continue to prioritize aggressive investments to grow the business”.
At the close of calendar Q2, according to SEC filings, Spotify was sitting on €2.44 billion (approx $2.85bn) in cash and cash equivalents.
“We believe this is an attractive use of capital, and based on the strength of our balance sheet, we continue to see ample opportunity to invest and grow our business.”
Paul Vogel, Spotify
Discussing the new buyback program, Paul Vogel, Chief Financial Officer, Spotify, said: “This announcement demonstrates our confidence in Spotify’s business and the growth opportunities we see over the long term.
“We believe this is an attractive use of capital, and based on the strength of our balance sheet, we continue to see ample opportunity to invest and grow our business.”
The repurchase program does not obligate Spotify to acquire any particular amount of ordinary shares, and the repurchase program may be suspended or discontinued at any time at the company’s discretion.
“[We] have no intention to sell our stake in Spotify, which is a very good partner for us.”
Hervé Philippe, Vivendi (speaking earlier this month)
Spotify’s $1 billion buyback program wouldn’t be enough to acquire the entirety of Universal Music Group‘s shareholding in the streaming company, which MBW currently estimates to be worth around $1.45 billion.
UMG’s majority-owner, Vivendi, said earlier this month that it had no intention to sell its Spotify stake anytime soon.
Speaking to investors on a Q2 earnings call, Vivendi’s CFO, Hervé Philippe, commented: “[We] have no intention to sell our stake in Spotify, which is a very good partner for us… We are a happy shareholder of Spotify.”Music Business Worldwide
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