That figure was up €7 million from a year earlier despite “higher working capital needs arising from select licensor payments (delayed from Q1), podcast-related payments, and higher ad-receivables”.
In the first half of 2021, for example, Spotify posted net profit of a mere €3 million on revenues of €4.5 billion. That translates to: That cash is earmarked for growth, not shareholder return.īut isn’t Spotify still a growth company? It certainly isn’t valued on the weight of its profits. Timm demurred on the idea, saying instead that his company is building for the long-term. Root’s share price has declined in recent months, perhaps making it an attractive time to reward shareholders through buybacks. For example, TechCrunch asked Root Insurance CEO Alex Timm if his company intended to use cash reserves to purchase its own equity after its recent Q2 2021 earnings report. From that perspective, seeing Spotify decide to deploy some cash to repurchase its own equity makes sense - the company is buying low.īut if you ask a recently public company what it intends to do with its excess cash, buybacks are not usually the answer. Spotify shares have traded as high as $387.44 apiece in the past 12 months, but are now worth just $215.84, inclusive of today’s gains. By limiting the shares in circulation, the company’s share count declines and the value of each share consequently rises, in theory, as it represents a larger fraction of ownership in the corporation. Also, by buying their own stock, companies can boost the value of their individual shares. Buybacks, along with dividends, are among the key ways that companies can use their wealth to reward shareholders.
The goal of such efforts is to return cash to shareholders. 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. A public company using some of its cash to repurchase its shares is nothing new.