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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
Stock market flotation is a significant event for a company like Spotify, primarily as it allows the business to raise capital by selling shares to the public. This capital is critical for Spotify, as it can be invested in developing new products and services, including music video subscription features which are becoming increasingly important in the competitive streaming market. The flotation enables Spotify to enhance its competitiveness against major players such as Apple and Google, which may have access to greater resources.
Step 2
Potential counterbalance
Answer
Despite the benefits, one of the challenges Spotify faces is its lack of profitability. If Spotify continues to operate at a loss, it may be viewed as a less attractive investment by the stock market. This could result in insufficient capital being raised during flotation, hampering its growth potential. Furthermore, the current management may lose control or oversight as shareholders demand accountability, which could limit investment in new technologies.
Step 3
Potential judgement
Answer
Overall, the primary consequence of Spotify's stock market flotation is its ability to raise substantial capital. This fundraising is crucial for Spotify to compete effectively in a rapidly evolving music streaming landscape, especially against dominant companies like Apple and Google. The influx of capital could facilitate innovation and growth, positioning Spotify advantageously in the market.