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Ok, I'm obviously over-simplifying the situation, but I have hard time believing that stock price doesn't matter. If nothing else, then downward trend would gen

by jan_g 14y ago

Ok, I'm obviously over-simplifying the situation, but I have hard time believing that stock price doesn't matter. If nothing else, then downward trend would generate lots of negative press and customers might turn away from the company's products/services. Imagine if Google's stock price would decline significantly in the period of next year or two - wouldn't that spell doom and gloom in people's eyes? Disclaimer: I have never invested in any company, never bought any stock, so you may call me naive.

glesica 14y ago
That's true, to a point. If Google's stock price fell off a cliff tomorrow it would be all over the news and their customers (advertisers) might have some questions. But there are two things to keep in mind: 1) If their stock price fell off a cliff, there's got to be a reason. It could be basically anything, but it has to exist and be well-known (maybe Larry Page had a breakdown, shaved his head and tried to run down some reporters, whatever). The event that caused stockholders to sell (thus crashing the stock) probably would have been enough to cause Google's customers to ask questions, the stock price is then just incidental. It's a "chicken and egg" problem in some sense. 2) Stock price really doesn't have any impact on the everyday functioning of an otherwise-healthy company. Stock price is a reflection of the buying and selling happening on the stock market, so fluctuations in price can actually have nothing to do with the current health of the company in question. Maybe tomorrow a report comes out that indicates search-based advertising will start to decline next year and will be half what is today in 2020. This would likely lead to a decrease in Google's stock price. But it probably wouldn't lead to many companies dumping Adsense, at least not yet. A report about the future affects the stock price, but it doesn't necessarily affect the customers today. Stock prices are abstract and largely disconnected from the actual company. So while a good CEO will pay attention to the stock price, it just isn't all that important for most (especially mature) companies. Building a healthy business is the important part.
sethg 14y ago
In general, if a company’s stock goes way down and that decline is attributable to bad management, then some entrepreneur can gather together a bunch of investors and say “I can run that company better than the yoinks that currently occupy the boardroom. Loan me enough money to buy up 51% of those undervalued shares, and when I take over and turn the company around, the appreciated stock will make us all rich.” However, FB Inc. is structured so that Zuck will retain a majority of the voting rights, even if every other investor stands against him (http://www.slate.com/articles/business/moneybox/2012/02/facebook_s_ipo_how_mark_zuckerberg_plans_to_retain_dictatorial_control_his_company_.html http://www.slate.com/articles/business/moneybox/2012/02/face...), so even if the price goes down to a dollar a share, investors’ only recourse will be to sell before it drops to fifty cents.
rory096 14y ago
>Imagine if Google's stock price would decline significantly in the period of next year or two - wouldn't that spell doom and gloom in people's eyes? Would you stop Googling things because you read a news story about their stock price declining? (Caveat: There's some economic work that models real-world feedback from irrational "noise" trading. If you're interested in learning more I'd start with Subrahmanyam & Titman's 2001 "Feedback to Cash Flows.")

by jan_g 14y ago

glesica 14y ago

That's true, to a point. If Google's stock price fell off a cliff tomorrow it would be all over the news and their customers (advertisers) might have some questions. But there are two things to keep in mind: 1) If their stock price fell off a cliff, there's got to be a reason. It could be basically anything, but it has to exist and be well-known (maybe Larry Page had a breakdown, shaved his head and tried to run down some reporters, whatever). The event that caused stockholders to sell (thus crashing the stock) probably would have been enough to cause Google's customers to ask questions, the stock price is then just incidental. It's a "chicken and egg" problem in some sense. 2) Stock price really doesn't have any impact on the everyday functioning of an otherwise-healthy company. Stock price is a reflection of the buying and selling happening on the stock market, so fluctuations in price can actually have nothing to do with the current health of the company in question. Maybe tomorrow a report comes out that indicates search-based advertising will start to decline next year and will be half what is today in 2020. This would likely lead to a decrease in Google's stock price. But it probably wouldn't lead to many companies dumping Adsense, at least not yet. A report about the future affects the stock price, but it doesn't necessarily affect the customers today. Stock prices are abstract and largely disconnected from the actual company. So while a good CEO will pay attention to the stock price, it just isn't all that important for most (especially mature) companies. Building a healthy business is the important part.

sethg 14y ago

In general, if a company’s stock goes way down and that decline is attributable to bad management, then some entrepreneur can gather together a bunch of investors and say “I can run that company better than the yoinks that currently occupy the boardroom. Loan me enough money to buy up 51% of those undervalued shares, and when I take over and turn the company around, the appreciated stock will make us all rich.” However, FB Inc. is structured so that Zuck will retain a majority of the voting rights, even if every other investor stands against him (http://www.slate.com/articles/business/moneybox/2012/02/facebook_s_ipo_how_mark_zuckerberg_plans_to_retain_dictatorial_control_his_company_.html http://www.slate.com/articles/business/moneybox/2012/02/face...), so even if the price goes down to a dollar a share, investors’ only recourse will be to sell before it drops to fifty cents.

rory096 14y ago

>Imagine if Google's stock price would decline significantly in the period of next year or two - wouldn't that spell doom and gloom in people's eyes? Would you stop Googling things because you read a news story about their stock price declining? (Caveat: There's some economic work that models real-world feedback from irrational "noise" trading. If you're interested in learning more I'd start with Subrahmanyam & Titman's 2001 "Feedback to Cash Flows.")