Question

***I understand this question has already been asked, but could I possibly get a new answer? I am trying to study a variety of companies and answers so I will be more prepared for whatever is on the test.***

DoorDash as the company.

1. Select a company that has undergone an initial public offering within the last five years and obtain the prospectus (these are usually available on the company’s website, EDGAR for companies listed on the U. S. stock exchanges, or other information services).

A. What is the business strategy and business model?

B. Identify the strategic objectives.

C. Identify the key critical risks.

D. Discuss which of the critical risks identified in C. above the internal audit function should focus on and set as the highest priority, in order to provide assurance that effective controls are being implemented, to the Audit Committee and Senior Management.

Answer 1

The company we will analyze today is Spotify

A) Business Model & Strategy

Spotify is home to 35 million songs, which are stored on their servers. To stream audio for millions of end users, A P2P network is relied upon

Spotify will purchase a license from labels, artists, publishers, etc which allows them to stream the music on its platform. It employs complex algorithms to determine the royalty payout for every artist or label. The various factors used for calculating the royaty are country (in which the song gets played), currency value of the country, contracts, artist value etc.

Spotify eventually makes money by two methods

i) A free subscription, where they earn money via advertisments

ii) A premium subscription, where they earn a subscription fees

B) Strategic Objectives

The main growth strategies for Spotify are i) market development, ii) market penetration. They are focusing on simultaneously applying both these strategies in order to strengthen their competitive positioning, as the biggest music streaming company

Their focus areas are Customer growth (Paid and non-paid) along with acquisitions for faster growth

C) Key Risk

The biggest risk that Spotify faces are

i) Technology disruption- Tech is changing very fast, and if they do not keep evolving, they might be disrupted

ii) Loss of human capital - Their only asset is the smart and intelligent people working for them, if there is a sudden exodus of smart people, there could be trouble

iii) End of contracts with artists - If artists stop renewing their contracts with Spotify, Spotify will have no music for its subscribers to stream

D) The internal management should spend most of its focus on planning to stay ahead of the technology curve so that to ensure that Spotify is not disrupted. They must keep track of the latest developments in the sector and make sure they are better than that, to stay in the game