Streaming titan Spotify has recently announced that it will spend $1 billion purchasing its own stock between 2021 and 2026. This news excited many as shares rose 5.1% following the announcement.
“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.”
At first glance, a company buying back $1 billion of its own stock may seem confusing. However, it is fairly normal for a company valued at $41.06 billion to make this kind of commitment to its shareholders.
“A public company using some of its cash to repurchase its shares is nothing new. Many public companies, including Apple, Alphabet and Microsoft, have active share repurchase programs, and it is common to see mature or nearly mature companies devoting a fraction of their balance sheet or a regular percentage of their free cash flow to buying back their own equity,” TechCrunch‘s Alex Wilhelm explains
“The goal of such efforts is to return cash to shareholders. Buybacks, along with dividends, are among the key ways that companies can use their wealth to reward shareholders. Also, by buying their own stock, companies can boost the value of their individual shares.”
Those interested in getting in on the game can purchase Spotify stocks at just above $215. With that said, expect the stock price to rise in the coming days.