Spotify buyback: questions and answers

Spotify

Spotify’s response to the recent tech stock sell-off, announcing plans for a $1bn (€875m) buyback, raises questions.

The music streaming platform, Europe’s most valuable start-up, has had some $10bn wiped off its now circa $26bn market cap since peaking in July.

The planned share purchase was announced after the music streamer published its Q3 results, with paid subscribers increasing 40 per cent to 87 million worldwide and revenue rising 31 per cent to $1.54bn. Operating loss nearly doubled to $6.8m. Is the company exploiting the market rout, that has seen household names such as Amazon and Netflix fall from record highs, to pick up a bargain? Or is it simply trying to prop up a falling share price?

There is one question, however, that the buyback does seem to address. The company undertook an unorthodox direct-listing IPO in April, which eschewed a traditional underwriting process and did not include lock-up restrictions. There were some suggestions at the time that this was done to allow Spotify’s private shareholders to offload their shares. The decision to buyback $1bn worth of stock should, at the very least, put that question to bed.