Spotify (SPOT) has decided to buy back $1b worth of shares from the public by 2026 in a move that will allow the company to raise the value of its shares significantly (if a stock becomes more exclusive, its price will increase). After a 52-week high, trading at $387.44 a piece, Spotify’s stock has been on a downward trend and was recently trading at $215.84. Just by announcing the buyback program, the company’s shares jumped 5.1% on the New York Stock Exchange and started trading at $224.88 (talk about a quick turnaround).
This is not the first time that the audio streaming giant engages in a buyback program to boost its share value. In 2018, the company announced plans to buy back $1b worth of stocks by April 2021. It’s quite normal for companies to execute share buyback programs to return cash to shareholders. One reason to do this is to calm down itchy investors who are not patient enough to wait for their dividend (think about it as a little pre-birthday gift).
why it matters
The share buyback program is a practice usually employed by mature companies, not by growth-focused companies such as Spotify. Spotify may have just renounced to fatter gross margins in order to make some investors happy on the short term.