Optimal Capital Allocation Strategies: CFOs Pondering Business Systems Agility and Resilience

What are the functions of CFOs? How do firms determine the optimal capital allocation strategy- best mix of debt, equity, and internal financing that maximizes the return on invested capital? How do firms choose their capital structure? How do firms align and integrate their business systems and processes to facilitate learning, coordination, collaboration, and innovation? These strategic questions relate to business systems agility and resilience in disruptive, emergent and dynamic circumstances; and the optimal capital allocation strategies and capital structure of a business enterprise-the appropriate mix of debt and equity that maximizes the return on investment and shareholders’ wealth while minimizing the weighted average cost of capital (WACC), simultaneously.

While disruptions often reveal the potential vulnerabilities of business systems, processes, and procedures, they also provide insights into business agility- capacity for rapid change and for flexibility in operations and resilience- ability to anticipate, recover from disruptions, emergencies, withstand or recover quickly from difficult and adverse conditions. Clearly, effective capital allocation strategy is vital to a sound business strategy designed to maximize the wealth producing capacity of the enterprise. In these series on optimal capital allocation strategies, we will focus on business systems and processes agility and resilience and provide some practical guidance. The overriding purpose of this article is to highlight some key portfolio of CFOs as we ponder industry best practices in business systems agility and resilience. For specific financial management strategies please consult a competent professional.

Some Duties of CFOs

CFOs are responsible for firms’ past and present financial health and constitute an integral part of a firm’s senior leadership in charge of financial management-acquisition and allocation of financial resources. CFOs have multiple duties, that include reviewing and presenting financial statements, planning budgets-cash and capital; and deciding where and when to invest firm’s funds. CFOs design, plan and execute the capital structure of the firm-determine the best mix of debt, equity, and internal financing. Addressing the issues surrounding optimal capital structure and allocation is one of the most important duties of CFOs.

Some Practical Guidance

As I have already explained, while disruptions often reveal the potential vulnerabilities of business systems, processes, and procedures, they also provide insights into business systems agility and resilience. The COVID-19 pandemic was not an exception, it tested the effectiveness of firms’ capital allocation strategies, planning and execution. Firms that were able to quickly re-prioritize investments and re-allocate capital have weathered the storm and, in some cases, even improved their competitive position. But a slight majority of CFOs indicate the COVID-19 pandemic had an overall negative effect on their firm’s ability to efficiently and effectively invest capital in 2020. The apparent lack of agility and resilience in so many firms call for culture of assessment and opportunities for continuous improvement.

Most CFOs indicate the pandemic has forced them to completely rethink their capital allocation strategy, business financial systems, processes, and procedures. There is gathering empirical evidence suggesting that many firms have embraced remote work based on veritable data on productivity. For example, health care providers have fully embraced telemedicine. Many manufacturers have established new health and safety procedures. The question every firm must now answer is which of the many business model changes are strategic and which are only transactional? Additionally, the COVID-19 pandemic has accelerated some trends that were already in place, such as the push into all things digital. In fact, digital technology, which supports trends such as telemedicine and remote working, is the area were CFOs most frequently indicate investment increased in 2020 vs. 2019.

A significant majority of CFOs indicate accelerated digital transformation will impact capital allocation going forward. With so much uncertainty, firms need to weigh the likelihood of various scenarios to determine what their business may look like in the future, and then align their strategy and capital allocation accordingly. CFOs must carefully determine what assets and capabilities they have and need. Once the future state of the firm is carefully assessed, then CFOs must take inventory of the businesses and assets in their portfolio. Systematic periodic portfolio reviews can help CFOs find assets that no longer align with firm’s long-term strategy but can easily be divested to fund future investments.

There is gathering empirical evidence suggesting that the COVD-19 pandemic has forced closer examination of corporate financial portfolios. Indeed, significant majority of CFOs indicate they plan sustained review and rebalancing of their portfolios to focus on the core businesses. Firms should continuously evaluate which assets and capabilities within their portfolio will help enable their future-state business model. Should these assets and capabilities be owned because they are at the very core of the business? Could they instead be acquired through partnerships or purchased from third parties, with the trade-off of giving up some control? Many companies are considering these “asset-light” business models that look to source non-core capabilities or inputs into the business through strategic alliances, partnerships, joint ventures, collaborations, or outsourcing agreements.

The goal of evaluating whether your firm is the best owner of each asset is to free up capital to invest in the capabilities that will be core to the business enterprise in the future. Funding future portfolios requires a capital allocation process with governance that instills discipline and enables unbiased decision-making. The process must also be agile enough to adapt to changing business needs. But many CFOs indicate their capital allocation approach is not adequately flexible and regularly updated nor informed with necessary data. Therefore, the business financial systems and processes should be systematic, deployed and integrated to facilitate learning, innovation, and continuous improvement.

There is material empirical evidence suggesting that even when the process is systematic, more than a simple majority of CFOs indicate their capital allocation process is not always followed. Consequently, less than half of CFOs indicate they can quickly assess market threats and opportunities and reprioritize planned investments accordingly. This can hinder long-term shareholder returns as only slightly less average number of CFOs indicate their capital allocation process is successfully helping them achieve their Total Share Return (TSR) goals-a measure of financial performance, indicating the total amount an investor reaps from an investment-specifically, equities or shares of stock. In practice, TSR factors in capital gains and dividends when measuring the total return generated by a stock. The formula for calculating TSR is { (current price – purchase price) + dividends } / purchase price. TSR represents an easily understood metric of the overall financial benefits generated for stockholders. Therefore, TSR is a good indicator of an investment’s long-term value, but it is limited to past performance, requires an investment to generate cash flows, and can be sensitive to stock market volatility.

Process Alignment and Integration

Extant academic literature and best industry professional practices suggest that in firms with aligned and integrated business systems and approaches, operations are characterized by repeatable processes that are routinely evaluated for continuous improvement. Learning is shared and there is deliberate coordination among all business units. Further, processes adhere to key strategies and goals and are regularly evaluated for change and continuous improvement in collaboration with various business units. The firm so aligned and integrated seeks to achieve efficiency, quality, innovation, and customer responsiveness across all functional areas of the business enterprise through analysis, innovation, and sharing of information and knowledge management designed to create and maintain competitive advantage in the global marketplace.

Processes and measures track progress in key strategic and operational goals. Aligned and integrated processes require consistency among plans, processes, information, resource decisions, workforce capability and capacity, actions, results, and analyses that support key system-wide goals and strategic priorities. Effective align­ment requires a common understanding of shared purposes, critical functions, and goals. It also requires the use of complementary measures and information to drive planning, tracking, analysis, learning, innovation, and continuous improvement at all levels. Effective alignment and integration require harmonization of plans, processes, and knowledge management to support key system-wide goals. Therefore, effective integration goes beyond alignment and is achieved when the individual components of a firm’s performance management system operate as a fully interconnected unit. Functional adaptability is the measure of matured business systems and processes.

Agility and Resilience

Best industry professional practices suggest agility and resilience require business leaders to know, understand and anticipate emergent business challenges, stay flexible to adapt to shifts in the global marketplace and initiate change in their firms. It’s the dynamic business enterprises that have a much better chance to survive – and even to thrive – in the shifting global business environment. Further, agility and resilience relate to the firm’s ability to plan, anticipate, prepare for, and recover from disasters, emergencies, and other disruptions, and protect and enhance workforce and customer engagement, supply-network and financial performance, firm’s productivity, and community well-being when disruptions strike.

Additionally, resilience requires agility throughout the firm and goes beyond the ability to return to status quo ante when disruptions emerge. In practice, resilience means having a plan in place that allows the firm to continue operat­ing as needed during disruptions. To achieve resilience, business leaders must cultivate the agility to respond quickly to both opportunities and threats, adapt strategy to changing circumstances, and have robust governance with a culture of trust. Agile and resilient firms adopt an ecosystem mindset, embrace data-rich thought processes, and equip their workforce with ongoing learning of new skills and align business systems around critical functions.

In sum, changes in customer requirements, uncertainty over the pace of the post-pandemic recovery, challenges in developing accurate forecasts, and the need to decide which changes accelerated by the COVID-19 pandemic are strategic and which are transitory all point to the importance of culture of assessment and continuous improvement in the capital allocation systems and processes. While most CFOs indicate they review their capital allocation process annually, only few perform gap analysis and regularly analyze how the process needs to be modified.

Given the speed of market dynamic, firms should be striving for a capital allocation process that is fully aligned, integrated and innovative. The capital allocation process should not end when decisions are made. During implementation, CFOs and their teams should verify that the assumptions made around the investments are proving out or require in-flight adjustments. After implementation, governance should also call for gap analysis to determine the effectiveness of the allocation strategies and then incorporate those learnings into future investment decision-making. A clear majority of CFOs indicate their process framework and governance, and project monitoring and review are only slightly or not at all effective. These challenges can hinder business financial system agility and resilience during disruptions and changing market conditions, leaving firms vulnerable and unable to pivot when needed.

Firms should utilize advanced tools to gather and analyze data. Key performance indicators (KPIs) are being evaluated on more metrics than ever before, both quantitative and qualitative. For example, sustainability metrics are now critical and go beyond revenue and profits but also address the social and environmental impacts of business strategies and decisions. Missing key industry benchmarks on any of these metrics can imperil earnings, firm’s reputation, and long-term value creation. Lack of data and analysis capability are among the most cited barriers to optimal capital allocation. All decisions must be data driven if firms are to create and maintain competitive advantage in the relevant market segments.

The Impact of the Current US Regulatory Environment on Family Business

Outraged by the Great Depression in Wall Street, the federal government has taken both legislative and regulatory action, many of which it fears will lose its mark. Instead of making investors more confident and making their businesses more efficient, there is a prospect that new laws, their related regulations, will hinder decision-making and divert attention from core business activities. While much of the new regulation targets large public companies, there are some implications for family businesses and family offices that may be noted.

As always, the concern following this phase of the new legislation is that the real consequences of those rules will come to fruition. These fears are exacerbated today by two somewhat unique factors. The first is the skeletal nature of the Dodd-Frank Wall Street Reform Consumer Protection Act, which left the SEC and other regulators to figure out how the law would be implemented in most cases. Second, the recent elections, which shifted the balance of power in Washington, effectively raised more questions about what the law of the country will be in the end.

Prudent business practice prompts us to prepare for both the expected and unexpected consequences of government action. Thus, in that spirit, it may be helpful to take a closer look at some of the implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010. on July 21. Or, as the name implies, the law addresses consumer protection, trade restrictions, and financial regulation, it also contains significant new corporate governance requirements that can directly affect family businesses.

Consequences: Intended or not?

As an example of how these decisions may affect family-owned businesses in Dodd-Frank, the SEC has clearly defined a single-family office “multi-family service office” in clarifying reporting requirements for family offices. As a result, family offices that have been opened to other families to share their services and the costs associated with providing them may be excluded from presenting themselves to the public as investment advisers. If the SEC in 2010 Based on the October 12, 2009, decision that the Family Office actually offers investment advice to the public, it will be required to register with the SEC in accordance with the provisions of the Advisers Act of 1940. Previously, consultants with less than 15 clients were exempted from the provisions of this Act. However, the new legislation removes the exception և the possible result is that only one family offices will be able to avoid registration և reporting. Hedge funds, rather than family offices, were likely to be the target of these changes, but the result still forced the SEC to develop a family office definition that seemed more restrictive.

Consequences of such unintended consequences, of trying to clarify or rectify laws and regulations, can often cause the most difficulty, precisely because no one has seen the problem before. While some of them may have a direct impact on the family business, as in the case of family offices, others may have a more systemic impact. For example, after the adoption of Sarbanes-Oxley, public companies were required to disclose more information and significantly expand their paperwork in the SEC. Most of these documents have become so prevalent that they have affected the claims of banks և other financial institutions from all their customers, complicating the process of securing credit lines and other loans for private companies.

Proxy access

One of Dodd-Frank’s most debated և potentially far-reaching provisions concerns proxy entry. Shortly after the law was passed, the SEC approved new rules that allow shareholders to enter a public company proxy to add their candidates to the company account to be elected to the board of directors. There may be restrictions on how many shareholders may be nominated by shareholders over those chosen by the company’s nominating committee, but this change sends shockwaves through corporations. An investor or group of investors only needs to own 3% of the company’s voting shares in order to apply this provision to nominate up to 25% of board members. This is a relatively low threshold for many pension funds, trade unions and other activist shareholder groups that have their own agenda. Such a small percentage can be a deterrent to family businesses that have sold at least a small portion of their shares through a public offering.

It will certainly discourage many family companies from entering public markets to raise funds to grow their business, effectively cutting off a potential source of investment capital. Any family business planning a public offering in the future should carefully consider the possibility that they may open their board to dissident groups whose agenda is set by minority owners outside the family. Proxy access will also provide new ammunition to those who wish to challenge the classification of stocks in a way that allows families to maintain control over voting. The New York Times Բար Barnes և Noble have been the target of such attacks in the recent past.

Even small companies that are defined as companies with less than $ 75 million worth of shares sold on public markets will abide by this new proxy rule. However, the SEC suspended the use of small companies for three years to allow time for the study of the rule to apply to larger companies. Therefore, it is very likely that the family businesses owned by this small company will start planning their strategy for this new threat, which should be prepared in a short time. Possible strategies may include stock repurchase plans այլ other mitigation measures by the end of three years.

Compensation և Say-on-Pay:

Or it is not a direct threat to control, but payment on payment represents a potential intrusion, a disruption to the management of a public trading company, even if the controlling interest belongs to the family. This part of the regulation requires that shareholders have a non-binding vote on executive compensation at least every six years (possibly more often by a shareholder vote). Whether or not mandatory voting will not directly affect executive compensation, it has the potential to give a higher voice to dissident groups who do not understand or care about the competitive environment in which the company operates. This process will undoubtedly be another reason why family businesses can avoid raising capital through public offering of their shares, as many have done in the past.

Impact on family business

Given the above issues, the unintended consequence of Dodd-Frank’s SEC rules implementing it may be to close a potential source of growing capital for family-owned enterprises. Families have always had to carefully consider the pros and cons of selling some of their shares on public markets for privacy reasons. There is a real danger of control now, even if a minority of shares are traded և many may not go that route, even if it means slow growth և missed business opportunities.

It may also be recalled that even family businesses that do not sell any shares on public stock exchanges are likely to be affected by the ongoing development of new regulations as a result of the Dodd-Frank Act. As in the case of Sarbanes-Oxley, banks and financial institutions will adjust their processes and practices to comply with new public company regulations. This will undoubtedly mean that family businesses need to respond to the challenges posed by public companies simply because they have become part of the business of financial institutions. These companies may start anticipating these changes, working with their bankers, accountants, lawyers to be prepared.

Of course, not all the consequences of these changes are bad. The SEC aims to develop new regulations to meet Dodd-Frank’s intentions by promoting effective “accountability” between the company’s shareholders, owners, directors and executives. These are important goals that any business family should pursue. Trust and harmony between the family is built և established through transparency between family business owners և intended owners. What Dodd-Frank seeks to impose on public companies in terms of compensation practices հաս access to shareholders can be used to maintain the patient capital that family businesses rely on.

Leading change in the global environment

World affairs are often volatile. The Japanese stock market fell again this month, setting its worst one-week high since the 2008 global financial crisis. Japan is not alone in its low performance markets. However, globalization has linked countries through a variety of elements. Financial markets are no exception. This article examines the problems of change in the global environment and discusses the merits of change agents in today’s organizations.

Change for organizations comes in many forms. In the Harvard Business Review, author Rod Ashkensas presented a framework for dealing with change. “It simply came to our notice then. But we really know. how to make discrete changes. ” The main type of change in organizations can be classified as ascending (gradual) և disruptive (radical). The incremental change can be defined as “a small adjustment to the final result”. Managers are either aware of the change or have sufficient notice to be able to respond in a controlled predictable manner.

With increasing change, organizations can make slow, systematic improvements. If you think about Whirlpool և its devices, the individual will have a good idea of ​​how organizations respond to gradual change. Customers wanted their devices to reflect the changes in society. Given this reality, refrigerators have shifted from the basic colors of white to more unique color combinations. Electronic technology is included in the production of Smart devices. Companies now have plenty of time to respond to consumer demand. Disruptive change does not give organizations such a generous response period.

A disruptive change is one that leads to the failure of large companies and the dismissal of respected CEOs. Organizations can not afford to misunderstand this type of change. Unlike incremental change, which can have some predictability, disruptive change can be classified as unpredictable, irrational, or unstable. All of these adjectives mean higher risks for organizations. Disruptive change speaks to the changing nature of our society. Young adults feel comfortable with their technology. We live in an instantaneous society that wants everything now. Disruptive change can provide a market advantage.

Harvard Professor Clayton Christensen, author The innovator’s dilemma, coined the term disruptive innovation to describe how innovation transforms an existing market or segment by presenting it in a simple, convenient, affordable, affordable way to customers. In fact, the product և service is quite inferior to the product or service of the status quo. Disruptive innovation is an innovation that creates a new market և value network և, ultimately disrupting an existing market և value network by displacing established market leaders և alliances. One of the most challenging innovations in modern education is distance learning. Traditional universities have tried to ignore the model only with modest initiative. Phoenix University, a non-commercial higher education institution with more than 100,000 students և 112 world universities, is slowly overtaking the education market. Whether the university has been criticized for its business practices, lost students, no one is saying that the innovative strategy of distance learning և treating students like customers is the wrong model.

Globalization, with all its wonders, poses a threat of disruptive change. Organizations need leaders who are agents of change at this time in history, not just managers. Dr. Christenson notes the failures of large companies like Sears in the face of unforeseen changes. “As we will see, the list of leading companies that failed when faced with disruptive changes in technology and market structure is long … One topic is common to all. One of these failures, however, is that the decisions that led to the failure were made at a time when the leaders in question were widely regarded as one of the best companies in the world. ”

What is a change agent? A change agent is one who “helps the organization transform by focusing on issues such as organizational efficiency, improvement, and development.” The change agent has a high internal change rate. That reality means that this man is being pushed out from inside. In times of adversity, that individual has enough inner motivation to overcome external forces. Os Hillman, author Agent of change. Engage your passion by being the difference, claims that change agents are special people.

In order to change the culture, Hillman mentions that the individual must be special. “It takes less than 3-5% of those working on the top of a cultural mountain to actually change the values ​​on that mountain.” Many organizations are mired in tragedy and need a change agent to carry them out. In many organizations, significant changes do not occur from the bottom up. The following are the characteristics of an effective change agent in a global environment: (1) courageous, (2) morally sound, (3) global mindset, (4) visionary, (5) strategic, (6) adaptive, (7) relative, և (8) committed.

Therefore, government leaders must be agents of change in their organizations. Unfortunately, many executives are reluctant to invest their time in developing and promoting change agents in their organizations because of concerns about their shareholders and financial experts. As change continues to be faster and more unpredictable, today’s organizations need to equip themselves effectively. They must accept the recruitment and development of change agents within their organizations.

© 2016 Daryl D. By Green

This work is licensed under the Creative Commons Attribution-NoDerivatives 4.0 International License.

Lord Shiva. The pioneer of disruptive innovation

“Let the elements of creation remain perfect in me.

Let the greatest that can be in the world be created by me, by us, by all living beings.

I respect this divine potential that has been unleashed by Shiva for the common good. ”

– (Panchakshri mantra.)

Time is a great transformation tool that tests the four stages of our lives, defines our whole life on an infinite, cosmic platform. Time is eternal, created from the breath of divine energy that nourishes the universe. We have seen that even nature is used as small tools in the hands of Eternal Time. Be it the fiery tremors, the destructive tsunamis, the creeping sensations of an earthquake, or the fury of a volcano that we have witnessed in all the natural disasters that are happening on earth.

Mythology affirms that God is beyond the limits of time, horse, space, sound, has the power to create or destroy time, the universe in a matter of seconds.

God Shiva is the Lord of eternity, full of life, who commands the forces of destruction and creation. He is ridiculed for his enormous avalanche on the Rudra as the almighty destructive horse that destroys everything to nothing. Shiva has done countless such devastations in various ways, subtle or cruel, but yet when he perfectly recreates the world, we can never know whether he destroyed or recreated it. He plays the role of a jeweler who dissolves existing jewelry to recreate purer gold that can be used to create another piece of jewelry with a fine design and precision.

Shiva represents the higher self, where man willingly moves forward, evolving towards cosmic existence.

Shiv is, in a real sense, a primitive pioneer of evolutionary energy և innovation.

Innovation introduces new products to the market to survive. Not only organizations, but countries and continents compete to create a strong culture of innovation that opens the door to sustainable operations for them. As individuals move forward, even individuals innovate, learning new skills, developing personality, knowledge, and integrating innovation into their domain to become more recognizable and successful.

With more than ten types of innovations on the market, disruptive innovation is an innovation that breaks an existing agreement by bringing in more improvements or value-added benefits to recreate better. Characteristics are derived from a user-focused research process focused on a specific consumer base to provide a definite outline in the broad nomenclature of Disruptive Innovation.

Tandavan is the energetic snow of Shiva dance, which dissolves in space to create, preserve, disrupt and recreate the process of rest. The instrument is a symbol of life cycles, which includes the creation նման destruction նման like the daily rhythm of life և destruction. Here’s how the Tandava tool can balance this perishable world. Tandava is Shiva’s powerful innovation innovation tool for preserving new creations.

Shiva crescent shows that we must have a perfect thinking process, being aware of our surroundings. This quality is important for innovators as they need to have a thorough knowledge of the market and be vigilant about market movements. The moon means that innovators have to think a hundred times and then take a step forward.

Shiva sits on the tiger’s skin or is covered in his meditative trance, contemplating his next creative cycle. The tiger’s skin has a high potential energy potential, which is expected to be the most innovative feature of the innovator. The potential energy of the innovator must be a vital aspect that drives the whole innovation process to reach the goal in a potential way.

Thomas Edison, the Wright brothers, Mark Zuckerberg, Steve Jobs, Sergey Bean, Bill Gates, and many others who did what they could.

The nectar-containing vessel Kamandalu is always seen on the ground next to Shiva. This Kamandalu is not made of gold or silver, but of dried pumpkin, as innovators need to focus on natural resource use, environmental care, energy conservation, and sustainability when innovation is at its highest.

Hour Glass Drum is a combination of two triangles separated by a thin linear structure. The drum known as Damru sounds like Tandava dance. The sound of the drum is heard only during deep meditation. For the innovator, this drum is a user research tool where the innovator must listen to the user’s needs, preferring deep attention and compassion.

Ganga flowing from long, sensual garments made of Shiva copper signifies vitality, fertility, a lofty cause for supporting life on earth. Innovation must be done with high spirits, vigor and enthusiasm, but the philosophy of human well-being must be seen for the sake of the people և the well-being of society.

The necklace of snakes և Rudrakhas represents the law, order և justice, which are the foundations of any science, including the science of disorder. Innovation must not disturb the well-being or harmony of the environment.

Trident introduces action, willpower, and knowledge to the three key attributes of each disruptive innovator. The innovator must have the ability to put his ideas into action with great willpower and expert knowledge.

Nandi, his bull continues to wait for Shiva to wake up from meditation listening to the universe. He removes ignorance; Bequeath wisdom to the descendants of Shiva. This is how the innovator should be educated. Convince users of the purpose of the innovation և how we can progress with the invention.

His dance in the hot red flames, rising from his tongue և from his left hand, tells us that everything will be exhausted at some point, և, therefore, we must keep up the pace.

Lord Shiv և Շ his Shiv-tattoo (principles), in fact the reproductive power, are also elements of Obstructive Innovation. When we associate these incredible symbols, myths, and space tools with the science of Disruption Innovation, it is clear that the God of Destruction is the original pioneer of Disruption Innovation.

“Whatever the origin of Shiva, as described in the Holy Puranas, the Vedas, its innate characteristics, its role in the cosmic activity of the universe, it can clearly be considered the art or science of Preventive Innovation.”

The biggest technology IPO of 2018 is over-hype

I admit it … I’m one of those people who sings a little loud (և a little off) when I put on my headphones.

I can not control myself, the music touches me … to the annoyance of anyone in the field of hearing.

In fact, most of my iPhone memory is dedicated to my playlists. Until I recently updated my storage, I actually had to delete the photos to keep all that music ready to be played with my finger.

I have a lot of space now … but there is a problem.

It is known that I pay more than $ 20 a month to buy songs from Apple. I know this is completely unnecessary for today’s streaming technology. But I was stuck in my paths.

I recently “joined” … ա I joined Spotify, a live Swedish listening service. And I will never go back.

So when Spotify, which is valued at about $ 20 billion, announced its unique share offer in March / April, I was thrilled. I started researching the headlines և already analysts call this the biggest technical initial public offering (IPO) of 2018. The expectations are huge.

But, alas, I am a cynic at heart. Despite my excitement, I had to ask myself … Is a Spotify stock ad really worth it? So today, let’s take a closer look at this IPO to find out.

There is talk of a musical revolution

Spotify is, in my opinion, one of the most powerful innovations in music, as Kurt Cobain has probably discovered ear-splitting reactions – raw, sad words about teen anxiety.

The concept is simple: you are broadcasting music on the Internet. Free. Or, at most, a small $ 9.99 monthly fee. You just need the Spotify app to access it.

When Spotify was launched in October 2008, it was a breakthrough, a revolutionary idea. That’s why the company helped to become a leader in the music streaming market by paving the way for services such as Apple Music (Apple streaming service launched much later in 2015).

Spotify is an endless, user-friendly cash register.

You listen to what you want, where you want, when you want. The app is compatible with almost every device I can think of, from PC to smartphone և tablet.

And if all that music sounds overwhelming, do not worry, you can also use the unique music discovery function to find songs that match your musical preferences.

The whole platform is a great idea.

Unfortunately, investors like us have not been able to participate in this revolutionary service because the company has been private for the last decade. So now that we can get a share of the stock soon, we need to make sure it’s worth the investment.

The Times, they are A-Changin ‘$ 1.8 trillion for the industry

The first thing to note is that, according to PwC, the global entertainment industry is expected to grow from $ 1.8 trillion in 2016 to $ 2.2 trillion by 2021. That’s good, but it represents a slower 4.2% annual growth rate, down from 4.4%. % forecast was made in 2016

This means that the old school entertainment industry is starting to grow. To address this, the industry needs to focus on building sustainable customer relationships.

After all, consumers are king. When it comes to recordings – movies, television, music – we dictate what we want to see, hear or feel. We vote at the expense of our time, our attention փոքր the small subscription fee (think Netflix, Amazon Video և Hulu).

Just as industries and goods, such as healthcare, cars, refrigerators, thermostats, etc., needed a revolution. See Exact Medicine, Internet of Things, and Fun.

And that revolution is here. Spotify is just one of the big players.

That’s why Spotify has about 140 million active listeners, 70 million of whom pay premiums for advanced features. Better yet, the service boasts 30 million songs, adding more than 20,000 songs a day.

It also contains over 2 billion playlists created by the company’s growing user base (a great idea that engages the customer much more directly), and 5 5 million playlists are created or edited daily.

This is obviously a huge availability. However, there is one problem …

The problem is money, money, money

Despite all this, Spotify has not found a way to be profitable.

Yes, in 2016 sales increased by 52% to $ 3.09 billion. However, the net loss doubled to $ 568 million. (Although the net adjusted loss is over $ 310 million).

For example, about $ 2.62 billion of that revenue was evaporated from the value of goods sold. Another $ 440 million was lost on sales, marketing costs, and more.

Minimum profit before interest, taxes, depreciation Amortization in 2016 amounted to a negative $ 169.2 million, compared to a loss of $ 180 million the previous year. Billboard counted.

But we have to see that the company generates positive income.

Not Spotify. So the numbers made me raise my eyebrows. With that in mind, I turned to Paul Mampili for his thoughts on Spotify’s public listing.

Paul Mempilli speaks on Spotify Stock

Paul is our favorite guy for all the breakthrough technology, so I knew he had to come up with some interesting ideas. Here is what he said to me.

Spotify’s public list is interesting from two points of view. Instead of making the shares available to the general public, Spotify will list itself directly on the stock exchange. This means that only institutional investors have access. excluding the need for banks to set a preliminary price, contact sellers, buyers, etc.

Second, Spotify is still losing money, even though it has a huge subscriber base. However, it’s also a subscriber business, which means revenue duplication, it’s a great model. Plus, like Netflix, it’s a global business, so it can continue to grow.

So the biggest concern for Spotify is this. Are enough people going to buy an IPO that you want to be in from day one? Because many times you get the opportunity to buy it lower. This is because most people play IPOs for the first day or week for a quick pop and then release them.

I’m saying that people who want to buy stocks as an investment should wait their turn, wait for stocks to trade, and see how Spotify’s business operates in a few quarters. Then you can build your position over time if everything looks good.

Overall, Spotify is a great product with a great model. It can ultimately lead to profitability. But this is “wait and see”. Do not get depressed by the noise!

Amazon, the king of disruptors


As for disruptive technologies, there is one company that dominates. Amazon ($ AMZN): Amazon և առաջ առաջ: առաջ առաջ: և:::::::::::::::::::::::::::::::::::::::::::: In this article, I’re going to explain what makes Amazon such an effective car: ության Many industries are disrupted.


When was the last time you joined Barnes & Noble ($ BKS)? Or any other bookstore for that matter? What was the last time you visited Amazon? I’m ready to bet that almost everyone who reads this has been on Amazon’s website in the last few days, և I’m just as willing to bet that almost no one has entered a physical bookstore in a long time. The bookstore industry, symbolizing the former giant Barnes & Noble, was the first victim of Amazon’s disruptive trends. Amazon’s roots go back to 1994, when the company started an online bookstore. Formed as an online bookstore, Amazon was able to offer a much wider selection than any physical bookstore, just as it was able to offer the same choice to a cheaper consumer. As the free market usually operates, consumers chose the cheaper option when offering the same product or service. In 2007, Amazon surpassed Barnes & Noble in book sales, and in the same year they released the first version of the Kindle e-book reader. Digital book sales in 2010 surpassed physical book sales through Amazon. Amazon also runs Audible, one of the largest players in the audiobook game. In 2011, Borders Group, which just a few years ago was the second largest bookstore chain in the United States, filed for bankruptcy, and a few months later ceased to exist. At the time of writing, Barnes & Noble has a market capitalization of approximately $ 454 million. Amazon has a market capitalization of about $ 832 billion. According to market capitalization, Amazon is worth about 2000 times more than Barnes & Noble. Amazon’s entry into the bookstore industry փոխարին Replacing companies that were previously firmly in place is simply the first of many areas that have disrupted the Amazon Bull.


After direct retail sales վճար payments from third-party vendors on Amazon’s website, Amazon generates the largest percentage of its revenue from Amazon Web Services (AWS). AWS has a history of 2006. In 2006, Amazon subsequently launched the Simple Storage Service (S3), a file storage service, as the name implies. Simple Queue Service (SQS), a service designed to automate message queuing. And to end the year, they launched the Elastic Cloud Computer (EC2) service, which allowed users to pay for server time to run simulation applications. Today, there are about 100 different services offered under the auspices of Amazon Web Services that can cater to almost any digital needs. Today, almost half of digital cloud computing is operated by Amazon. As with the bookstore industry, Amazon has taken control. By 2020, cloud computing is projected to be an industry worth more than $ 400 billion. And Amazon is going to dominate this market in the foreseeable future.


The retail industry is a perfect example of Amazon’s ever-changing industry, of which they are best known. However, from the beginning, Walmart ($ WMT) has only about three times the annual revenue of Amazon, so Bezos and Co. are not dominant in the retail industry, but they have certainly experienced a decline. It can be said that they have disrupted the industry. Although they were founded in 1994, for the first four years they were just an online bookstore, but in 1998 the company expanded its catalog and started selling more than just books. Since then, the company’s online sales have grown exponentially, and they have even been accused of pushing traditional retailers out of business. Amazon gets about 85% of its revenue from its retail business, so it’s obvious that it’s the largest share of Amazon. Leading online retailer Amazon has established itself as one of the major retailers despite being completely online, in part because of its convenience and low prices. Most recently, in 2017, Whole Foods, a luxury grocery store, was acquired by Amazon to increase its market share in the retail sector. With its online retail business, Amazon is able to capture significant market share and keep the agency in space. Just to look at the size of Amazon, more than two-thirds of all households have an Amazon Prime subscription.


Above, I talked about what Amazon’s biggest divisions are and what they are best known for. But here I will talk about the lesser known parts. Amazon launches its Amazon Video service և available to all Prime customers. This service acts as a traditional television և media և competition և popular among cordless cutters, it competes with other streaming services such as Netflix ($ NFLX) և Hulu (soon owned by Disney ($ DIS)) և thousands of movies և television. shows. There is Amazon Drive, which offers unlimited file storage for only $ 59.99 per year. They recently acquired the streaming site twitch, the largest live video streaming site that gives Amazon a market share in streaming and e-sports. One of the first subsidiaries is A9, a highly advanced search engine marketing company with machine learning. Amazon also tracks self-driving car companies such as Tesla ($ TSLA) and Google Waymo ($ GOOG, $ GOOGL). Either Tesla is not as developed as many people think, nor a good investment. Back on track, they also have Amazon Music, Amazon Tickets, Amazon Home Services, Amazon Inspire, Internet Movie Database (IMDb), Amazon Go, Fire TV, Goodreads, Zappos ավելին and more. Keep looking for Amazon affiliates or services offered by Amazon that I did not mention, you can probably find at least a few dozen. A few days ago, Amazon even announced that they were purchasing an online pharmacy to offer an online pharmacy և pharmaceutical delivery service that would disrupt traditional pharmacies.


Amazon is currently the second most expensive company in the world with market capitalization. The only company that surpasses them is the technology giant Apple ($ APPL). Given Amazon’s huge growth potential բաց lack of adequate competition, I believe their value will continue to rise. They are in a unique position to disrupt almost every area that can be thought of succeeding at the same time. Amazon is a remarkable company that will continue to expand indefinitely, և I would advise everyone to invest in the company, even though some people think they are overrated.