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Assess the likely consequences of stock market flotation for a business, such as Spotify. - Edexcel - A-Level Business - Question 1 - 2019 - Paper 1
Question 1
Assess the likely consequences of stock market flotation for a business, such as Spotify.
Worked Solution & Example Answer:Assess the likely consequences of stock market flotation for a business, such as Spotify. - Edexcel - A-Level Business - Question 1 - 2019 - Paper 1
Step 1
Consequences of flotation
Answer
Stock market flotation occurs when a company offers its shares to the public to raise capital. For Spotify, this would enable the company to secure necessary funding to invest in new products, such as innovative music video subscription services. This capital influx could enhance Spotify's ability to compete against major competitors like Apple and Google, both of whom have substantial resources at their disposal. Importantly, flotation could increase Spotify's visibility and commitment to pursuing growth in the music streaming sector.
Step 2
Potential counterbalance
Answer
However, it is vital to consider the drawbacks. Spotify has yet to achieve profitability, which could dissuade investors from purchasing its stocks, potentially leading to insufficient capital being raised. This situation could hinder Spotify's capacity to develop new offerings. Furthermore, existing executive control might be compromised post-flotation, potentially complicating leadership's ability to innovate. Investors' demands and expectations could also distract Spotify from its core mission.
Step 3
Potential judgement
Answer
Ultimately, while flotation presents the opportunity for Spotify to raise significant capital needed for its growth, the long-term consequences must be carefully evaluated. The company's ability to adapt to investor expectations and maintain a competitive edge will determine the success of this strategic move in the increasingly competitive music streaming market.