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SPOT Stock: The News That Has Spotify Investors Smiling Today

Music-streaming company Spotify (NYSE:SPOT) has not had a good 2021. Indeed, SPOT stock remains down approximately 30% from levels it started the year at. Growth investors banking on continued outperformance from this hypergrowth play have generally been disappointed.

Spotify (SPOT) logo is on the screen of a smartphone with headphones plugged in.
Source: Kaspars Grinvalds / Shutterstock.com

However, today, SPOT stock is in the news as a big gainer. The company’s stock price is currently up around 6% at the time of writing on an otherwise positive day for equities.

This move comes amid reports that Shopify is looking to buy back its shares. A $1-billion-share buyback program has been announced, signaling Spotify believes its shares are undervalued. This move appears to be an attempt to reassure investors of the underlying value Spotify provides. Additionally, the company notes that this buyback “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.”

Let’s dive into some of the details of this buyback and why investors are getting so excited about this announcement.

SPOT Stock Higher on Plans to Buy Back Shares

A number of high-growth companies buy back their own shares. This is not a new phenomenon, and it is quite common in the technology space. Instead of paying taxable dividends to investors, buybacks allow those with existing stakes to own more of the company (in percentage terms), without purchasing shares on their own. Iconic investors such as Warren Buffett have previously touted the benefits of buybacks, particularly in a down market.

The problem is, we’re not in a down market. Sure, SPOT stock is down 30% year-to-date. However, the argument can be made that this stock isn’t exactly “cheap.”

That said, Spotify is seemingly taking aim at that concept. The company is hoping to signal to the market SPOT stock holds tremendous value today.

Other investors will point out that as a hypergrowth company, perhaps this $1 billion would be better spent via reinvestment in the company’s core business. Whether it’s acquiring more licensing rights or exclusive podcast content, this money could go a long way to spurring future growth.

Spotify’s management team has stated its balance sheet is in a very good position. Additionally, the company believes it has the capital necessary to grow at a market-beating rate. Today, investors seem to agree with this sentiment. Accordingly, investors seem willing to buy SPOT heavily today.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2021/08/spot-stock-the-news-that-has-spotify-investors-smiling-today/.

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