Why public companies care how their stock price fluctuates? [duplicate]
The folks who hold stock are the legal owners of the company. If a majority of stock holders become unhappy with the management of a company they can fire the executives and put in new management, or they can direct the company to close its doors and sell off its assets. As a crude approximation, the stock holders are happier when the stock price goes up and unhappier when it goes down. Therefore, executives are highly motivated to drive the stock price up.  A frequent criticism of corporate governence is that management can be so motivated to drive the stock price up, that they will take actions that drive the stock price up in the current year, even if undercuts the company in the long term.
Most stocks are not actively trades by lots of people.   When you buy or sell a stock the price is set by the “order book” – that is the other people looking to trade in the given stock at the same time. Without a large number of active traders, it is very likely the pricing system will break down and result in widely changing prices second by second.   Therefore for the market to work well, it need most people to be trading at the same time. Companies are expected to make a profit, otherwise there is no point to their existence and no motivation for investment. That profit comes back to shareholders as growth and/or dividend. If a company is doing well and has a healthy profit to turn back into investment to facilitate increased future earnings, it increases shareholder equity and share price. If a company is doing well and has a healthy profit to pay out in dividend, it makes the shares more attractive to investors which pushes the price up. Either way, shares go up. Share prices drop when companies lose money, or there are market disturbances affecting all companies (recessions), or when individual companies fail. Averaged over all companies over the long term (decades), stocks can be reasonably expected to go up. Companies pay their employees in stocks and stock options, so they have an incentive towards increasing a company's share price. There are many elements that go into a stock's price. For example, if you hold a stock for eternity you should be indifferent if the expected present value of all its future dividends (i.e. earnings) equals the price you paid for it. Also, buy-back policies and voting rights determine stock price as well. The theory is that since shareholders want return on their investments they would promote company executives in such a way that their incentives are aligned to increase the share price. It's the buying and selling of the stock that causes the fluctuation in prices, not the news. People buy and sell all the time, and not just for newsworthy reasons.  They may have to send a child to college, or fix a roof, etc.  Or they may be technical traders looking for signals.  All kinds of reasons. Fiduciary They are obligated by the rules of the exchanges they are listed with. Furthermore, there is a strong chance that people running the company also have stock, so it personally benefits them to create higher prices. Finally, maybe they don't care about the prices directly, but by being a good company with a good product or service, they are desirable and that is expressed as a higher stock price.  Not every action is because it will raise the stock price, but because it is good for business which happens to make the stock more valuable. Makes perfect sense in two ways. Staying private allows companies to focus on long term strategy rather than quarterly results, and some of the companies mentioned raised lots of money very quickly but might not have the most stable strategy over the long term which would turn off public investors. A stock's price does not move in a completely continuous fashion.  It moves in discrete steps depending on who is buying/selling at given prices. I'm guessing that by opening bell the price for buying/selling a particular stock has changed based on information obtained overnight. A company's stock closes at $40.  Overnight, news breaks that the company's top selling product has a massive defect.  The next morning the market opens.  Are there any buyers of the stock at $40?  Probably not.  The first trade of the stock takes place at $30 and is thus, not the same as the previous day's close. Like others have already said, it may cause an immediate dip due to a large and sudden move in shares for that particular stock. However, if there is nothing else affecting the company's financials and investors perceive no other risks, it will probably bounce back a bit, but not back to the full value before the shares were issued. Why? Whenever a company issues more stock, the new shares dilute the value of the current shares outstanding, simply because there are now more shares of that stock trading on the market; the Earnings Per Share (EPS) Ratio will drop since the same profit and company value has to be spread across more shares. Example:  If a company is valued at $100 dollars and they have 25 shares outstanding, then the EPS ratio equates to $4 per share (100/25 = 4).  If the company then issues more shares (stock to employees who sell or keep them), let's say 25 more shares, then shares outstanding increase to 50, but the company's value still remains at $100 dollars. EPS now equates to $2 per share (100/50 = 2). Now, sometimes when shareholders (especially employees...and especially employees who just received them) suddenly all sell their shares, this causes a micro-panic in the market because investors believe the employees know something bad about the company that they don't. Other common shareholders then want to dump their holdings for fear of impending collapse in the company. This could cause the share price to dip a bit below the new diluted value, but again if no real, immediate risks exist, the price should go back up to the new, diluted value. Example 2: If EPS was at $4 before issuing more stock, and then dropped to $2 after issuing new stock, the micro-panic may cause the EPS to drop below $2 and then soon rebound back to $2 or more when investors realize no actual risk exists. After the dilution phase plays out, the EPS could actually even go above the pre-issuing value of $4 because investors may believe that since more stock was issued due to good profits, more profits may ensue. Hope that helps! "I've alway thought that it was strange, but the ""price"" that gets quoted on a stock exchange is just the price of the last transaction. The irony of this definition of price is that there may not actually be any more shares available on the market at that price. It's also strange to me that the price isn't adjusted at all for the size of the transaction. A transaction of just 1 share will post a new price even if just seconds earlier 100,000 shares traded for a different price. (Ok, unrealistic example, but you get my point.) I've always believed this is an odd way to describe the price. Anyway, my diatribe here is supposed to illustrate the point that the fluctuations you see in price don't really reflect changing valuations by the stock-owning public. Each post in the exchange maintains a book of orders, with unmatched buy orders on one side and unmatched sell orders on the other side. If you go to your broker and tell him, ""fill my order for 50,000 shares at market price"", then the broker won't fill you 50,000 shares at .20. Instead, he'll buy the 50 @ .22, then 80 @ .23, then 100 @ .30, etc. Because your order is so large compared to the unmatched orders, your market order will get matched a bunch of the unmatched orders on the sell side, and each match will notch the posted price up a bit. If instead you asked the broker, ""open a limit order to buy 50000 shares at .20"", then the exchange will add your order to the book: In this case, your order likely won't get filled at all, since nobody at the moment wants to sell at .20 and historically speaking it's unlikely that such a seller will suddenly appear. Filling large orders is actually a common problem for institutional investors: http://www.businessweek.com/magazine/content/05_16/b3929113_mz020.htm http://www.cis.upenn.edu/~mkearns/papers/vwap.pdf (Written by a professor I had in school!)" Why do companies exist? Well, the corporate charter describes why the company exists. Usually the purpose is to enrich the shareholders. The owners of a company want to make money, in other words. There are a number of ways that a shareholder can make money off a stock: As such, maintaining the stock price and dividend payouts are generally the number one concern for any company in the long term. Most of the company's business is going to be directed towards making the company more valuable for a future buyout, or more valuable in terms of what it can pay its shareholders directly. Note that the company doesn't always need to be worried about the specifics of the day-to-day moves of the stock. If it keeps the finances in line - solid profits, margins, earnings growth and the like - and can credibly tell people that it's generally a valuable business, it can usually shrug off any medium-term blips as market craziness. Some companies are more explicitly long-term about things than others (e.g. Berkshire Hathaway basically tells people that it doesn't care all that much about what happens in the short term).  Of course, companies are abstractions, and they're run by people. To make the people running the company worry about the stock price, you give them stock. Or stock options, or something like that. A major executive at a big company is likely to have a significant amount of stock. If the company does well, he does well; if it does poorly, he does poorly. Despite a few limitations, this is really a powerful incentive. If a company is losing a lot of money, or if its profits are falling so it's just losing a lot of its value as a business, the owners (stockholders) tend to get upset, and may vote in new management, or launch some sort of shareholder lawsuit. And, as previously noted, to raise funds, a company can also issue new shares to the market as a secondary offering as well (and they can issue fewer shares if the price is high - meaning that whatever the company is worth afterward, the existing owners own proportionally more of it). The short answer to your question is yes.  Company performance affects stock price only through investors' views. But note that selling for higher and lower prices when the company is doing well or poorly is not an arbitrary choice.  A stock is a claim on the future cash flows of the firm, which ultimately come from its future profits.  If the company is doing well, investors will likely expect that there will large cash flows (dividends) in the future and be willing to pay more to hold it (or require more to sell it).   The price of a stock is equal what people think the future dividends are worth.  If market participants started behaving irrationally, like not reacting to changes in the expected future cash flows, then arbitrageurs would make a ton of money trading against them until the situation was rectified. "I think the first misconception to clear up is that you are implying the price of a stock is set by a specific person. It is not. The price of a stock is equal to the value that someone most recently traded at. If Apple last traded at $100/share, then Apple shares are worth $100. If good news about Apple hits the market and people holding the shares ask for more money, and the most recent trade becomes $105, then that is now what Apple shares are worth. Remember that generally speaking, the company itself does not sell you its shares - instead, some other investor sells you shares they already own. When a company sells you shares, it is called a 'public offering'. To get to your actual question, saying something is 'priced in' implies that the 'market' (that is, investors who are buying and selling shares in the company) has already considered the impacts of that something. For example, if you open up your newspaper and read an article about IBM inventing a new type of computer chip, you might want to invest in IBM. But, the rest of the market has also heard the news. So everyone else has already traded IBM assuming that this new chip would be made. That means when you buy, even if sales later go up because of the new chip, those sales were already considered by the person who chose the price to sell you the shares at. One principle of the stock market (not agreed to by all) is called market efficiency. Generally, if there were perfect market efficiency, then every piece of public information about a company would be perfectly integrated into its stock price. In such a scenario, the only way to get real value when buying a company would be to have secret information of some sort. It would mean that everyone's collective best-guess about what will happen to the company has been ""priced-in"" to the most recent share trade." "Note that we do not comment on specific stocks here, and have no place doing so. If your question is only about that specific stock then it is off topic. I have not tried to answer that part below. The key to valuation is predicting the net present value of all of a company's cash flows; i.e. of their future profits and losses. Through a number of methods to long to explain here investment banks and hedge funds work out what they expect the company's cash flows to be and trade so that these future profits, losses etc. are priced into the stock price. Since future cash flows, profits or whatever you want to call them are priced in, the price of a stock shouldn't move at all on an earnings statement. This begs the question ""why do some stock prices move violently when they announce earnings?"" The models that the institutional investors use are not perfect and cannot take into account everything. An unexpected craze for a product or a supply chain agreement breaking down on not being as good as it seems will not be factored into this pricing and so the price will move based on the degree to which expectation is missed or exceeded. Since penny socks are speculative their value is based far more on the long term expected cash flows and less on the short run cash flows. This goes a long way to explaining why some of the highest market capitalisation penny stocks are those making consistent losses. This means that they can be far less susceptible to price movements after an earnings announcement even if it is well out of the consensus range. Higher (potential) future value comes with the higher risks of penny stocks which discounts current value. In the end if people's expectation of the company's performance reflects reality then the profitability is priced in and there will be no price movement. If the actuality is outside of the expected range then there will be a price movement." Great for Facebook but why does a company like Sun Microsystems or FedEx sell stock?  In order to reach quarterly goals a publicly traded company has to make sure they stay in the black every quarter by cutting cutting cutting cost which may not be good for a long term goal of investing in new ideas or processes. The other answer has some good points, to which I'll add this:  I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public.  An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO.  These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need.  If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions:  When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company.  In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc.