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Do shareholders give capital? Maybe if you’re on the board or something? But even then it really feels like shares are the dissemination of capital, where if yo

Do shareholders give capital? Maybe if you’re on the board or something? But even then it really feels like shares are the dissemination of capital, where if your company does well then the share goes up. Like me buying 5 shares of Apple isn’t really giving Apple any capital as the price is based on market cap. Happy to learn if I’m wrong though.

lotsofpulp 3y ago
Market capitalization is a function of share price, specifically share price times number of shares. You buying 5 shares shifts the demand curve for the share to the right, resulting in an increase in the price. (absent a simultaneous proportional increase in the supply of shares). While it may not feel like your purchase of 5 shares gave Apple capital, your demand was surely part of the aggregate demand and supply that determines Apple’s share price at a certain point in time, and hence informs Apple’s market cap.
- HWR_14 3y ago
  None of what you just described gives Apple capital unless Apple decides to issue more shares. Given that Apple has been retiring shares, not issuing them, your purchase of Apple stock and subsequent shift of the demand curve actually removes more capital from Apple than if you did not purchase any stock.
  - relix 3y ago
    This is a very naive, simplified, and wrong take on a generally well accepted concept. Point 1: increased demand for stocks will increase the price of it and thus the market cap. Point 2: the higher the market cap of a company the more capital it has available.
    - HWR_14 3y ago
      I'm saying point 2 is only true if the company wants to issue shares (unless you are talking about second-order effects like cheaper bond rates). Apple is actively repurchasing shares, so they don't have more capital because the price went up. Yes, it theoretically means they could raise more money by issuing shares, but that's not happening.
      - lotsofpulp 3y ago
        Is it more capital if they are using RSUs in compensation?
        HWR_14 3y ago
        So, it's depends how they do that. In 2022, Apple seemed to buy all the Apple stock they used for RSUs in the open market. So, absolutely not in that case. But they don't have to do that. They could issue the shares for RSUs. If they issue new shares (either to sell to the market or to use for RSUs) then the market cap directly influences how much they can generate in work or cash from such a transaction.
  - bagacrap 3y ago
    We're talking about Reddit, not Apple. Apple has enough cash flow to fund most investments and enough stability to get a decent rate on the bonds it issues. They do not need to sell more shares for capital, although they do create shares for RSUs. Using RSUs (which are later bought back) as a part of compensation is a kind of revolving line of credit, which conveniently scales with the success of the business. That is, when the business is going through tough times and stock price falls, the stock based compensation expenses also fall.
yunohn 3y ago
When talking about pre-IPO companies, yes, shareholders are those that have given money (or in kind) to the company for their shares.
bagacrap 3y ago
If it were not for the prospect of selling their shares to you (or back to Apple later), no one would have bought those shares in the first place. When a company is going through tough times, it can raise capital by issuing more shares. Apple is so successful at the moment that it does not need to do new public offerings, but it could choose to (like Nvidia recently -- not because of tough times, but because why not take free money when it's being shoveled at you). Also, price is not based on market cap... market cap is based on share price and count. But the larger the market cap, the more money can be raised by selling shares without diluting existing shareholders too much.

lotsofpulp 3y ago

Market capitalization is a function of share price, specifically share price times number of shares. You buying 5 shares shifts the demand curve for the share to the right, resulting in an increase in the price. (absent a simultaneous proportional increase in the supply of shares). While it may not feel like your purchase of 5 shares gave Apple capital, your demand was surely part of the aggregate demand and supply that determines Apple’s share price at a certain point in time, and hence informs Apple’s market cap.

HWR_14 3y ago
None of what you just described gives Apple capital unless Apple decides to issue more shares. Given that Apple has been retiring shares, not issuing them, your purchase of Apple stock and subsequent shift of the demand curve actually removes more capital from Apple than if you did not purchase any stock.
- relix 3y ago
  This is a very naive, simplified, and wrong take on a generally well accepted concept. Point 1: increased demand for stocks will increase the price of it and thus the market cap. Point 2: the higher the market cap of a company the more capital it has available.
  - HWR_14 3y ago
    I'm saying point 2 is only true if the company wants to issue shares (unless you are talking about second-order effects like cheaper bond rates). Apple is actively repurchasing shares, so they don't have more capital because the price went up. Yes, it theoretically means they could raise more money by issuing shares, but that's not happening.
    - lotsofpulp 3y ago
      Is it more capital if they are using RSUs in compensation?
      - HWR_14 3y ago
        So, it's depends how they do that. In 2022, Apple seemed to buy all the Apple stock they used for RSUs in the open market. So, absolutely not in that case. But they don't have to do that. They could issue the shares for RSUs. If they issue new shares (either to sell to the market or to use for RSUs) then the market cap directly influences how much they can generate in work or cash from such a transaction.
- bagacrap 3y ago
  We're talking about Reddit, not Apple. Apple has enough cash flow to fund most investments and enough stability to get a decent rate on the bonds it issues. They do not need to sell more shares for capital, although they do create shares for RSUs. Using RSUs (which are later bought back) as a part of compensation is a kind of revolving line of credit, which conveniently scales with the success of the business. That is, when the business is going through tough times and stock price falls, the stock based compensation expenses also fall.

yunohn 3y ago

When talking about pre-IPO companies, yes, shareholders are those that have given money (or in kind) to the company for their shares.

bagacrap 3y ago

If it were not for the prospect of selling their shares to you (or back to Apple later), no one would have bought those shares in the first place. When a company is going through tough times, it can raise capital by issuing more shares. Apple is so successful at the moment that it does not need to do new public offerings, but it could choose to (like Nvidia recently -- not because of tough times, but because why not take free money when it's being shoveled at you). Also, price is not based on market cap... market cap is based on share price and count. But the larger the market cap, the more money can be raised by selling shares without diluting existing shareholders too much.