SPOT today (August 20) announced that its board has approved a stock repurchase program by the company up to the value of $1 billion. By buying back stock, Spotify’s management are betting on an upswing in the second half of the year and beyond. SPOT’s share price has bounded up by over 6% today off the back of the news.
Stock buybacks are often a tax-efficient way for businesses to return excess capital to shareholders. The authorization is at the same time a vote of confidence in the future of the stock and an admission that Spotify might not have anywhere better to invest in the future growth of the business. That's a bit confusing for a growth stock like Spotify.
Spotify seems to be looking into more content creation. Spotify has been spending heavily on acquisitions and investments focused primarily on the podcast industry. Spotify has paid up for exclusive distribution rights for popular podcasts, acquired entire production studios, created its own original content, acquired and developed monetization tools for creators, and acquired its own podcast hosting company. All told, its podcast spending topped $1 billion in the last couple years.
During Spotify's fourth-quarter earnings call, CEO Daniel Ek said it might not invest as much on outside acquisitions in the future.
"Most of our strategy going forward, while we don't exclude any further acquisitions, it is about ramping the ability of our own production capabilities that we now have through all the studios that we have acquired."
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