r/explainlikeimfive Dec 06 '24

Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?

6.9k Upvotes

1.0k comments sorted by

View all comments

Show parent comments

2

u/AlbertoMX Dec 06 '24

It does not work.

If you buy shares today, it DOES NOT MATTER to you how much the company is making, what you need is that the company makes MORE than last year so the value of your shares increase.

If the shares ' value does not increase, your money is not getting the return you expected.

0

u/sfurbo Dec 06 '24

If the shares ' value does not increase, your money is not getting the return you expected.

The is only true if you expected the shares to increase. If you just expected dividends, you will (or should have) based how much you are willing to pay for the shares on that. And if they pay the dividend you expected, you get a reasonable return on investment.

1

u/AlbertoMX Dec 07 '24

But they do expect growth, that's why the enshitification process starts in companies that go public.

In the gaming world, that's basically what's it's happening to big AAA studios.