Going Public to Buy Back Stock

Spotify Technology SA went public earlier this year in a direct listing instead of an initial public offering: Rather than sell a bunch of shares to investors in a big coordinated offering, it just announced one day that its shares would trade on the New York Stock Exchange and that anyone who wanted to buy or sell could. Yesterday I mentioned that Spotify could have sold shares soon after that direct listing, once its trading price was established, and that it could have sold at near the market price, without the “pop” of a traditional initial public offering. That was a purely theoretical point though. Really Spotify didn’t sell shares in an IPO for the simple reason that it didn’t need any money. And in fact, instead of selling stock, Spotify announced yesterday that it will buy back as much as $1 billion of stock.

I often say around here that the point of public stock markets is to return cash to shareholders, not to raise cash from shareholders to invest in productive businesses. Certainly there are plenty of large U.S. companies that have spent far more on stock buybacks than they ever raised in public stock offerings. But Spotify will as far as I know be the first U.S. public company that has bought back stock from the public markets without ever raising any money in a public stock offering. Its interaction with the public equity markets has been entirely one-way.