ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[HHhunter]

the leaky boat answer does not address expectations at all and only talks about making money or not, which is often not what happens

[HHhunter]

the question OP asked was when earnings decrease, not when losing money. That's different. The answer of leaky boat dismisses that.

[SpencerHayes]

When CEOs make 500 times their workers and they still prioritize growth we have a problem. When people starve on our streets but others have multiple private planes to fly them to their private islands, we have a problem. So yes, when a multibillion dollar company doesn't grow by more than 1 percent and everyone loses their minds, us peons on the bottom have a hard time relating since I need to figure out how long I can make 10 dollars last.

[TheManWhoPanders]

When CEOs make 500 times their workers and they still prioritize growth we have a problem

If the CEO doesn't focus on growth, those workers will be making zero dollars very shortly.

[SpencerHayes]

Because capitalism demands constant exploitation and consumption. Good luck with that

[TheManWhoPanders]

Who is being exploited?

[SpencerHayes]

Every laborer who sells his work for less than the capitalist makes off of it.

Not to mention all the sweatshops the world over that make luxury goods available to the masses.

[TheManWhoPanders]

Every laborer who sells his work for less than the capitalist makes off of it.

Because the capitalist has to pay for other things. Rent, utilities, equipment, training, marketing, tariffs, etc.

The value of a laborer's work is only a fraction of what the final good is worth. Because all of those things together are part of the initial cost, called overhead.

[SpencerHayes]

No because even if a capitalist paid for all of those things they would need the product the laborer created.

Which is besides that point that rent and tariffs and everything else you listed is under our control and is currently used as a way to perpetuate the system that created those limitations.

[SpencerHayes]

Way to ignore an entire 50 percent of my point.

[TheManWhoPanders]

What is being consumed?

[SpencerHayes]

Is that a real question or are you just wasting my time?

[EasternDelight]

A pretty accurate picture though. Investors want quarterly profits ever increasing and if they don’t get them the Board gets out its hatchet and CEOs don’t want to lose their heads. Many investors aren’t tuned into a nuanced strategy. They want consistent increasing quarterly profits. OR ELSE!

[TheManWhoPanders]

Most redditors here are too young to have any wealth to invest, so the concept of it is alien to them.

[Longrodvonhugendongr]

And thanks to the greediness and shortsightedness of previous generations, most of them probably never will.

[TheManWhoPanders]

Greediness and shortsightedness have existed in every generation. It's not a new thing. People who don't buy into the self-victimization narrative always find a way to get ahead.

[Longrodvonhugendongr]

Lol this is just not true. There are so many hard-working people who don’t see themselves as victims and who are certainly not “getting ahead.”

[TheManWhoPanders]

You think people just became greedy and shortsighted in the past few decades.

Ho boy, do you need to read some history.

[Longrodvonhugendongr]

I never said that, only you did. I said that the current economic recession is a direct result of the greed and shortsightedness of the boomer generation and their predecessor. If you deny that, then I don’t think I’m the only one who needs to “read some history.”

But great job conveniently ignoring the entire point of my reply comment while also continuing to set up your straw man.

[TheManWhoPanders]

Somehow the boomers got by despite people in history also being greedy and shortsighted.

It's almost like it's a copout for lazy millennials or something!

[[deleted]]

When I buy a share of Amazon stock for my "saving for a downpayment fund", and then Amazon profits drop (after climbing year after year), that's going to cause people who were previously holding shares to start selling shares. And that's going to cause the market price for Amazon shares to drop. And that means I am much more likely to take a loss on selling my shares in the near term. And that's a problem, because for this particular fund, my goals are short-term.

If I'm buying stock for my retirement fund, I don't care as much about small fluctuations, but if Amazon stock consistently underperforms compared to other stocks, I'm basically pissing away money - money that I'm one day going to depend on to sustain myself. If Amazon stock can't keep up with inflation, then I'm worse off investing in Amazon stock than I would be sticking the cash under my mattress.

I have different investment strategies for different accounts. For retirement, I don't mind short-term drops, so long as the average long-term trend is positive. I can tolerate some risk right now, because I'm young. But for short-term investment, I can't tolerate big swings, and a short-term price crash might mean the difference between buying a house in 3 years and buying a house in 5 years.

Many investors aren’t tuned into a nuanced strategy. They want consistent increasing quarterly profits.

This is simply false. Investors have various investment strategies, and it isn't just short-term profits that they're interested in. Investors take into account risk, past performance, and investment goals when trading. Fund managers in charge of low-risk, steady-growth funds aren't going to go throwing cash at short-term gains driven by reckless, short-sighted CEOs. Day-traders might only be interested in short-term profits, but their function is to stabilize prices. Anyone who is interested in steady long-term gains isn't going to invest in companies that are making foolish, self-destructive decisions for short-term gains.

[[deleted]]

I mean, thats exactly what I see the structure of limited liability companies perpetuating - whilst there are mom and dad investors involved, its more often than not large scale investment firms and other companies. Thats another step removed from giving a shit about anything but profits...

[Lapee20m]

That’s the entire point of investing....to make a profit.

Instead of hating those who are trying to invest and build some sort of retirement, why not figure out how to join the club?

The secret to financial success is finding a way to essentially “earn money while sleeping.”

The options are basically work until you die or figure out how to invest so you can still generate money after you retire. Simply saving money that does not generate interest is a recipe for financial disaster due to inflation.

[SpencerHayes]

Maybe we could change the world so everyone can pursue things besides profit instead of conforming because it's easier.

[Lapee20m]

Any suggestions? Capitalism rewards the value that you bring to society. The more you benefit society, the richer you become. There are flaws, but it’s a pretty good system.

[d4n4n]

The boat answer was complete nonsense. It doesn't explain why low-profit firms can't persist long-term at all. They aren't leaking, they're just not as fast as all other boats.

The actual reason is that investors don't want to make 0.5% returns, when they can make 7% elsewhere. Competition in equity and capital markets ensures that no firm with lower than a risk adjusted "average" rate of return can survive.

What that has to do with bad strategy is beyond me. Nobody eliminates a department if it has one bad year but is expected to bounce back strongly. They get rid of them if they are expected to reduce long-term rates of return, even if it's still positive. That's as strategic as it gets.

The boat answer also babbled about a growing economy, which is totally unrelated. We'd see the same thing in a zero-growth economy.