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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 can provide Spotify with the necessary capital to invest in new projects, such as expanding its music video subscription services. By offering shares to the public, Spotify can gain access to a broader pool of funding, which is crucial for a company competing against large tech firms like Apple and Google. This financial boost is essential in enhancing Spotify's market presence and developing innovative features that attract and retain customers.
Step 2
Potential counterbalance
Answer
However, despite the potential for increased funding, it is crucial to note that Spotify has yet to achieve profitability. This lack of profit can deter investors, resulting in a decrease in the capital raised during the flotation. Additionally, the current board of directors may face pressure to maintain control and oversee operations effectively, which could restrict the company's ability to leverage new opportunities, such as immersive VR experiences. The uncertainty surrounding its business model may hinder Spotify's growth in a competitive streaming environment.
Step 3
Potential judgement
Answer
The most significant consequence of Spotify's stock market flotation is its ability to raise substantial capital. This influx of funds will empower Spotify to compete more aggressively with giants like Apple and Google in the rapidly evolving music streaming landscape. Ultimately, while flotation can present challenges, the potential for enhanced financial resources can position Spotify favorably for future growth.