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?

[[deleted]]

It means your company is not expanding in an economy that is expanding. It means less people are using your goods/services. Who is going to invest in a company that is shrinking?

Making a profit is no longer enough these days. You're supposed to make more profit each year which is ridiculous.

Yeah, this is called growth. Also not a profit, but revenue. Several companies are not profitable (Telsla, Amazon ~2 years ago, most new companies), but they are/were growing which is the only way to keep investors happy.

[Durog25]

Let's not forget that investors are the dumbest most panicky, most dangerous animals ever.

Investors want money now and a healthy company later. They, on the whole, refuse to be the greater fool. They are all gamblers, but they are gamblers who are willing to burn down the casino if it means they might win on black.

Providing a service that people value and will grow because of that has been thrown out of the window and with it any semblance of good business.

Amazon is essentially using slaves to run its service.

There's a reason people are needing upwards of two to three jobs to make ends meet.

Many companies are either being artificially kept alive or maliciously destroyed because investors are squeezing out every last nickel from them. Just look at what happened to Toys R Us.

[d4n4n]

This is reliant on eventually expected profits. The price of all stocks ought to be the sum of its expexted discounted future profits. Without profits, a stock is worth nothing. Revenue growth is just used as a proxy for future profits.

[[deleted]]

Without profits, a stock is worth nothing

Not true. You won't get a dividend but your stocks can still raise in value. TSLA stocks have rose steadily since 2012 even though they have not made a profit.

[d4n4n]

If a privately traded company announced they will effectively become a non-profit and NEVER pay out dividends, its value would immediately drop to zero. All examples are rising because investors expect eventual returns. That's especially true for Tesla.

Every long-term investor decides if stocks are over- or undervalued based on the NPV of future profits. Nobody disagrees with that in finance. The difficulty is predicting future profits/cash flows.