Spotify announces $1B stock buyback as artists call for fairer compensation

Spotify (NYSE: SPOT) has announced that it will begin repurchasing up to $1 billion in stock beginning in the third quarter of 2021.

Repurchases of up to 10,000,000 of the Company’s ordinary shares between Q3 and April of 2026 have been authorized by shareholders with a $1 billion spending cap.

UPDATE: Investors approved of the move pushing Spotify stock up almost 4% in the first hour of trading Friday.

But the billion-dollar buybacks come at a time when the world’s top streamer is the subject of increasing pressure to pay artists more and change how royalties are calculated.

Thus far Spotify has resisted any changes in how it compensates artists.

“You might say how do they sleep at night?” asks music attorney and industry analyst Chris Castle. “The answer? Sleeping very well on much nicer sheets than you, thank you, and for one reason – they do not give a flying hoot about your problems because Daniel Ek doesn’t think you’re working hard enough to make him and all his employees richer.”

The rich get richer and more powerful

In addition to CEO Daniel EK and other top executives, major Spotify stockholders include Baillie Gifford and Company with 11.54% of outstanding shares, Morgan Stanley with 10.75%, and Price (T.Rowe) Associates Inc. with 6.43% as of June 29, 2021. UMG also remains a significant shareholder.

“This announcement demonstrates our confidence in Spotify’s business and the growth opportunities we see over the long term,” said Paul Vogel, Chief Financial Officer at Spotify in a statement announcing the buyback. “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.”.

What Is A Stock Buyback?

Stock buyback benefits shareholders by increasing the percentage of ownership of each investor by reducing the total number of outstanding shares. In short, the company is concentrating its shareholder value rather than diluting it. 

“Buybacks increase a company’s earnings per share without an actual increase in profits. This would, in turn, drop the [price-earnings] ratio, making the company look more attractive,” Winston Chua, an analyst at EPFR Global told Forbes.

MORE: A better way to value streams on Spotify [Chris Castle]

Bruce Houghton is Founder and Editor of Hypebot and MusicThinkTank and serves as a Senior Advisor to Bandsintown which acquired both publications in 2019. He is the Founder and President of the Skyline Artists Agency and a professor for the Berklee College Of Music.