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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. (10)
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
A stock market flotation involves a company offering its shares to the public for the first time. For Spotify, this means raising significant capital needed to invest in new products, particularly in music video subscription services. This capital infusion can help Spotify enhance its competitive edge against rivals like Apple and Google. Additionally, flotation can enhance the company's visibility and credibility in the market, which can attract more subscribers.
Step 2
Potential counterbalance
Answer
Despite these advantages, Spotify has yet to turn a profit. This raises concerns for potential investors, as investing in the company might be seen as risky with uncertain returns. If the flotation does not raise sufficient funds, it could limit the company's ability to invest in new technologies and services, hindering growth. Furthermore, control over strategic direction may shift to new shareholders, which could compromise Spotify's innovative initiatives.
Step 3
Potential judgement
Answer
Overall, the primary consequence of Spotify's stock market flotation is the potential to secure a large amount of capital. This capital can aid in competition against larger tech companies in the expanding streaming market. However, careful navigation of investor relations and product development will be critical to harnessing the advantages of flotation effectively.