The multiple indignities of being a public company are becoming apparent to Spotify. The streaming music group joined the market in April using an unusual direct listing technique. Spotify sold no equity. Instead its stock simply began trading one day on the New York Stock Exchange. The shares have fallen a third since peaking in July.

On Monday, the company responded by announcing a $1bn share buyback authorisation. It is an odd response to the malaise. The enterprise value of Spotify is $23bn. But it remains a high-growth company with heavy investment needs and limited cash generation. The shares rallied slightly on the buyback news on Monday. That will confirm to some founders of tech unicorns that their worst fears about the public market are justified.

To the end of the third quarter Spotify had nearly 200m monthly users worldwide who either have paid subscriptions or tolerate advertising. Quarter-on-quarter growth in users typically is in the mid-single digits.

Last week the company slightly lowered its outlook for growth (by just 1m subscribers). Spotify also said that its profit margin would slip as future R&D expense would be higher in coming months. The company’s gross margin is around 25 per cent though its operating margin is roughly break-even. Broader worries about Spotify are weighing on its shares as the tech sector loses favour with investors.

A buyback, even a modest one, appears out of place. But Spotify must feel that its shares are battered enough that the outlay is worth it. Keep an eye on how much stock Spotify eventually buys. Its authorisation lasts through 2021 and it is under no obligation to purchase any shares. The price will snap back much faster if user growth and profits exceed expectations. Even if its shares are up modestly on the day, the more troublesome scenario is weak growth that stampedes the business into buying even more of them.

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